Melco Resorts Rating Upgraded Due to Macau’s Fast Recovery: S&P

May 17, 2023 Macau Casino & Hotel

Melco Resorts & Entertainment‘s credit rating has been upgraded by S&P Global from “negative” to “stable” due to the faster-than-expected recovery in Macau.
The ratings agency has also upped its estimate for Macau’s 2023 casino gross gaming revenue (GGR) from 60-70 percent of 2019 levels to 75-85 percent. The analysts expect a full recovery to pre-pandemic levels to occur in 2024.

Regarding the VIP segment, “GGR may stay at 20-25 percent of 2019 levels in 2023”, note the analysts, pointing out that Macau’s overall GGR has been rebounding faster than anticipated, with 1Q23 industry mass GGR rreaching 67 percent of 1Q19 levels while VIP GGR recovered to 23 percent of 2019 levels.

Melco’s reported hold-adjusted EBITDA recovered to about 50 percent of the 1Q19 levels, notes S&P. “The recovery should accelerate over the next several quarters, on the back of higher Macau visits, higher availability of hotel rooms, and incremental contributions from Studio City Phase 2 (opened on April 6, 2023).”

According to the latest financial results for 1Q23, Melco Resorts also narrowed its loss significantly to $81.28 million and recorded adjusted property EBITDA of $190.8 million – up nearly four-fold yearly.

In this case, S&P Global also raised its EBITDA forecast for the group by 13.5 percent, to $1.1 billion, for 2023 and by 2.5 percent to $1.5 billion for 2024. These are about 70 percent and 103 percent of 2019 levels, respectively.

The revision was made due to various improvements in Melco Resorts’ and Studio City’s performances. According to the analysts, the updated data from the ratings agency shows that “Melco Resorts & Entertainment Ltd. (MLCO) will finish 2023 with a leverage ratio of 6.3x, down from a previous expectation of 6.9x. Leverage should further drop to 3.8x in 2024, below the downgrade threshold for the current ratings”.

As a result, S&P Global affirmed its long-term issuer and issued credit ratings on Melco Resorts at ‘BB-‘ and on Studio City at ‘B+’.