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Fitch sees 70% Q2 revenue drop for Okada, downgrades Universal

Fitch Ratings has downgraded Universal Entertainment’s credit rating due to the impact of the coronavirus on the gaming industry and said it expects the group’s Okada Manila property to post a 70 percent drop in Q2 revenue.

The Long-Term Issuer Default Rating was cut to 'B' from 'B+' and the senior secured rating to 'B' from 'B+' with a Recovery Rating of 'RR4'. The rating Outlook is Negative. 

Fitch points out that Universal is reliant on just one property, which is still in the ramp up phase.

“The downgrade reflects increased uncertainty over the completion of the ramp-up and further expansion of Okada Manila,” it said. “The IR business had expanded dynamically prior to the closure and contributed more than half of consolidated revenue and EBITDA in 2019. We therefore expect the closure to weaken UE's cash flow materially at least through 2020.”

The ratings agency said it doesn’t expect properties in Manila to reopen until at least mid-June. In Q3, revenue is seen down 25 percent and 15 percent in Q4. The EBITDA margin for 2020 is likely to contract to a mid-single digit level and its free cash flow at the casino operations will be “materially negative” in the second half.

Universal's domestic pachinko and pachislot business had helped to offset the negative impact of the IR closure in Q1, but those parlours have now since been closed, which will lead to a delay in the recovery in machine sales.

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