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Melco poised to navigate careful course in managing spending

November 21, 2023 Macau Casino & Hotel

S&P Global Ratings states that Melco Resorts & Entertainment Ltd., a casino operator, will control its spending carefully and aim to bring its debt “closer to pre-pandemic levels.”

As of September 30, 2023, Melco Resorts had $7.77 billion in total debt, down $100 million from June 30, 2023. Even while this debt is around 70% more than it was in 2019, the company is committed to reducing leverage and keeping it below 3.0 times over the long run—a standard it had before the outbreak.

The high amount of debt was exacerbated by investments in Studio City Phase 2 and City of Dreams Mediterranean, as well as the three-year impact of Covid-19 limits in Macau and China. Cyprus’s City of Dreams Mediterranean debuted in July, while Macau’s Studio City Phase 2 in the Cotai district opened in phases between April and September 2023.

S&P Global Ratings projects that Melco Resorts’ leverage will return to pre-pandemic levels by 2025. To achieve this goal, the company is expected to focus on debt reduction and take care in managing spending on investments and shareholder returns over the next two years. Melco Resorts’ leverage (debt-to-EBITDA ratio) is expected to decrease from 7.0 times in 2023 to 4.2 times in 2024 and 3.2 times in 2025, according to S&P Global. This is an increase from 2019’s 2.7 times.

Melco Resorts has a strong cash position and a good liquidity profile, according to a note from Singapore-based consultant Lucror Analytics. It is anticipated that the company will have positive free cash flow in the current fiscal year. Melco Resorts faces a debt maturity cliff in 2025, but refinancing risks are deemed manageable. Leonard Law, a credit analyst at Lucror Analytics, states that any substantial dividend payments or share repurchases might be seen as very credit negative until the balance sheet fully recovers to pre-pandemic levels, which is not expected to happen until the end of 2024.