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Moody's revises Studio City Finance's ratings outlook to 'negative'

Moody's Investors Services has revised to ‘negative’ from ‘stable’ the outlook of Studio City Finance Limited's B2 corporate family rating and B3 senior unsecured rating.

At the same time, Moody's has affirmed Studio City Finance's corporate family and senior unsecured ratings.

"The revision in the outlook reflects Moody's concerns that a lower-than-expected allocation of only 250 gaming tables to the Studio City project will restrain the company's ability to generate cash flow, which will in turn weaken its liquidity and delay its process of deleverage," says Kaven Tsang, a Moody's vice president.

"Moreover, we expect this situation will lead to the breach of some of the covenants on its $1.4 billion secured credit facilities," added Tsang.

The Macau government has authorized that Studio City Finance's gaming operator, Melco Crown Limited, can operate 250 new gaming tables at the Studio City project's gaming areas.

The allocation is lower than the company's original plan of 400 tables.

While the Studio City project will begin to generate cash flow with its opening in October, its initial cash flow and the company's debt metrics will remain weak in the next 12 months.

This weakness is due to the challenging operating environment in Macau's gaming sector and the material amount of pre-opening expenses to be incurred in the initial phase of the operation.

Although the company had $853 million in cash as of June 30, “we expect liquidity to become tight over the next 12 months, unless the $100 million revolving credit facility remains available, but which is uncertain,” said Moody’s.


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