S&P affirms BB- rating for Studio City Co. Ltd

Saturday 25th of April 2015

Standard and Poor’s rating services has affirmed its BB- long-term corporate credit rating for Melco Crown subsidiary Studio City Co. Ltd, with a stable outlook.

"The affirmation reflects our view that Studio City's improved cash flows after its casino opening in late 2015 should offset its potentially diminished debt covenant headroom over the next 18 months," said Standard & Poor's credit analyst Sophie Lin.

S&P additionally affirmed its long-term Greater China regional scale rating on the company at 'cnBB+'.

"We expect the materially higher cash flows to support a significant improvement in the group's financial risk profile despite tough operating conditions in Macau's gaming market."

A big question hanging over Studio City is whether it can secure at least 400 gaming tables by October 1, 2016, which is a condition under its existing debt facilities. The Macau government has yet to provide clarity on the number of available tables. However, S&P expects to have better visibility on this issue after the opening of Galaxy Phase II in May 2015.

“We believe Studio City still has sufficient time to renegotiate covenant terms with its creditors, if required. In our opinion, Melco Crown Entertainment Ltd.Group is likely to support Studio City in case of credit stress, and this support underpins the rating,” S&P said, adding that the rest of the group is likely to provide additional liquidity in testing times.

The rating factors in challenges the company is facing such as high debt leverage and significant risks in executing and ramping up its Cotai venture.

“Weaker-than-anticipated demand or fewer-than-expected gaming tables in operation will hurt the company's financial performance and impair its ability to meet its financial obligations. In addition, the company faces single-property risk, in our view.”