The continued recovery of the Macau market should see concessionaire Melco Resorts & Entertainment increase its Adjusted EBITDA to around US$1.3 billion in 2024, up from US$900 million in 2023, in what ratings agency Moody’s believes will go a long way towards helping the company reduce its debt profile.
In a note following an announcement by Melco that its wholly-owned subsidiary, Melco Resorts Finance, was proposing a Senior Notes offering, Moody’s said increased cash flow through the coming year would help the company further reduce its debt, which had reached US$8.7 billion as of end-2022. Melco has since paid off around US$1 billion of that debt and has promised to continue focusing on debt reduction in the short-term.
“Melco Resorts & Entertainment’s adjusted debt/EBITDA will improve to around 5.5x this year and further to about 4.2x in 2025, from around 8.6x in 2023,” said the agency, which has assigned a Ba3 rating to the proposed Senior Notes.
“Melco has very good liquidity. Moody’s expects that, with [Melco’s] US$1.3 billion in cash as of the end of 2023 and operating cash flow, the company will have sufficient liquidity for its capital spending and debt repayments over the next 12 to 18 months. [Melco’s] proposed bond will further enhance the company’s liquidity profile.”
In a statement, Moody’s Vice President and Senior Credit Officer, Gloria Tsuen, explained, “The Ba3 rating primarily reflects Melco Resorts & Entertainment Limited’s established operations and high-quality assets, as well as our expectation that its financial leverage will continue to improve significantly during 2024-25 as the gaming market in Macau SAR, China, maintains its strong recovery.”
The agency added that it could upgrade the ratings assigned to Melco Resorts Finance if Melco further improves its earnings, reduces its debt and maintains good liquidity, such that its adjusted debt/EBITDA declines to below 4.5x to 5.0x on a sustained basis.
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