S&P lowers outlook for Studio City bonds

Sunday 21st of August 2016

Ratings agency S&P Global Ratings has lowered its outlook for Studio City Casino Macau bonds, warning the project could soon default on its loan.

According to Bloomberg, S&P cut the rating outlook on Studio City’s separate 2020 notes to “negative” last week on slower revenue and refinancing risk.

Earlier this month, Casino operator Melco Crown Entertainment Ltd reported revenue missed the mark in the 2016 second quarter at $1.07 billion, falling short of analyst estimates of $1.09 billion.

Revenues represented a 17 percent increase from $916.8 million for the second quarter of 2015.

"Macau continues to face challenges in gaming demand," CEO Lawrence Ho said in a statement.

According to analysts, Studio City remained slow in its ramp up.

“Studio City contributed adjusted EBITDA of $24.6 million Q2, below UBSe of $32 million, as the pace of ramp up remains slow,” said UBS analysts.

“Studio City, our second integrated resort in Cotai, Macau, which opened in late 2015, is still in its ramp-up phase and positioned for further increased revenues and profitability in the future as the property builds a strong customer database through its unique entertainment offerings which attract an increasingly Cotai-based mass market customer,” added Ho.

“Studio City is within an entirely separate credit group and its debt is nonrecourse to Melco,” said Melco in an e-mail statement on August 17. “Investors should not assume that Melco will provide any financial support to Studio City or that it would step in for Studio City.”

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