Melco Resorts & Entertainment is on track to book Adjusted EBITDA of US$700 million in 2023, reversing a US$100 million loss from last year, according to ratings agency Moody’s. Adjusted EBITDA will also rise further to US$1.2 billion in 2024, driven by the ongoing recovery in Macau, although this still falls short of the US$1.42 billion Adjusted EBITDA gain recorded in 2019.
The estimate formed part of a Monday note from Moody’s in which it affirmed the ratings of Melco subsidiaries Melco Resorts Finance Limited (MRF), Studio City Finance Limited (Studio City) and Studio City Company Limited (Studio City Company), with the rating outlook remaining negative. These ratings, it added, apply to MRF’s Ba3 corporate family rating (CFR) and senior unsecured ratings, Studio City Finance Limited’s B1 CFR and senior unsecured ratings, and the Ba3 rating on the USD senior secured bonds issued by Studio City Company.
“The rating affirmation reflects our expectation that Melco group’s financial leverage will improve significantly over the next two to three years, as Macau’s gaming market will recover strongly after China recently lifted its pandemic-related travel restrictions,” said Moody’s Vice President and Senior Credit Officer, Gloria Tsuen.
“Nonetheless, Melco group’s financial leverage will remain elevated over the next 12 to 18 months as the recovery is still in its early stages, and it will take time to repair the group’s capital structure, which weakened materially during the pandemic. This consideration drives the negative outlook.”
Moody’s estimates for Melco Resorts and Entertainment’s profit levels in 2023 and 2024 include an expectation that Studio City will also turn EBITDA positive this year and book Adjusted EBITDA of US$300 million in 2024.
The agency said its estimates are based on an assumption that Macau’s mass market GGR will return to 75% of pre-COVID levels this year and fully recover next year. However, accrued debt continues to hang over both Melco Resorts and Studio City with leverage to remain at 6.5x and 8.8x respectively until 2024.
“Melco Resorts’ adjusted debt increased to US$8.7 billion as of the end of 2022 from US$4.9 billion as of the end of 2019, while Studio City’s adjusted debt increased to US$2.4 billion from US$1.5 billion over the same period.
“While the steady growth in mass GGR will likely boost the group’s earnings and bring down financial leverage further in 2025, there is a degree of uncertainty about their ability to lower leverage below the respective thresholds for MRF’s and Studio City’s current ratings.”
Melco recently reported a net loss of US$251.9 million for the three months to 31 December 2022, with an Adjusted Property EBITDA loss of US$6.8 million.
