Melco to be cautious in spending to reduce leverage “closer to pre-pandemic levels”

November 22, 2023 Singapore Casino & Hotel Industry Updates

In an effort to bring its debt “closer to pre-pandemic levels,” Melco Resorts & Entertainment Ltd. is expected to exercise caution in its spending, according an S&P Global Ratings assessment.

Melco Resorts’ total debt as of the end of September was $7.77 billion, which is a $100 million reduction from the debt as of June 30, 2023. The ratings agency said that the debt load was “approximately 70% higher than the level in 2019.” S&P Global projects that Melco Resorts’ leverage will “recover closer to pre-pandemic levels in 2025.”

According to the business, “Melco Resorts had a record of operating with a leverage of below 3.0 times before the pandemic, and it aims to maintain this level of leverage in the long run.”

The report states “We believe the company will focus on debt reduction and continue to exercise caution in managing its spending on shareholder returns and investments during the next 24 months to achieve this target.”

Adjusted property earnings before interest, taxes, depreciation, and amortization (EBITDA) for Melco Resorts’ third quarter came in at US$280.6 million, up 5.0 percent over the prior quarter.

S&P Global projects that Melco Resorts’ leverage, or debt-to-EBITDA ratio, will decrease from 7.0 times in 2023 to 4.2 times in 2024 and 3.2 times in 2025. In contrast, this was 2.7 times in 2019.

Separately, Melco Resorts “has a strong liquidity profile, with a robust cash position,” according to a letter from Lucror Analytics, a Singaporean firm, which also predicted that Melco Resorts “will likely generate positive free cash flow” this year.

Lucror credit analyst Leonard Law said, “We expect refinancing risks to be manageable, even though Melco Resorts will face a debt maturity cliff in 2025.”

Resuming large dividend payments or share repurchases at Melco Resorts, in Mr. Law’s opinion, “before the balance sheet recovers to pre-pandemic levels – not expected until end-2024 – would be highly credit negative.”