Moody’s Upgrades Melco Resorts & Entertainment’s Credit Rating

Moody’s, the global credit rating agency, has recently upgraded the credit rating of Melco Resorts & Entertainment, a prominent casino company in Asia. The company’s credit rating, previously negative, has now been revised to Ba3, indicating an improvement in its overall stability.

The decision to upgrade Melco’s credit rating comes after the release of the quarterly results of its City of Dreams operator brand. The results for the third quarter were positively impacted by the favorable conditions in Macau, the special administrative region that continues to recover from the effects of the pandemic.

The recovery of the local market has led to an increase in business for Melco Resorts & Entertainment. In particular, the VIP segment has shown promising growth, with the company expecting its gross gaming revenue (GGR) to return to 36% of the 2019 level by 2024. This positive trend has been a driving force behind Moody’s decision to improve Melco’s credit rating, as confirmed by Gloria Tsuen, vice president and senior credit officer at Moody’s.

Tsuen also expressed optimism about Melco’s financial leverage, expecting it to improve significantly over the next 12-18 months. Despite the positive outlook, Tsuen acknowledged that Melco still faces challenges in fully recovering from the pandemic and China’s Zero-COVID policy. In 2022, the company experienced a significant loss of $100 million and encountered various business and financial obstacles.

However, Melco remains hopeful about its prospects for 2023 and 2024, expecting its earnings before interest, taxes, depreciation, and amortization (EBITDA) to increase to $900 million by the end of the current year and to $1.4 billion in 2024.

Moody’s also highlighted Melco’s strong financial position, including $1.2 billion in cash that the company can utilize to address its liabilities. Additionally, the agency pointed to Melco’s impressive portfolio in Macau as a factor that positions the company for a swift recovery.

However, Moody’s emphasized that Melco will need to demonstrate consistent improvement to further elevate its credit rating. Achieving an investment-grade rating will depend on the company bolstering its EBITDA to a range of 4.5x-5x.

While Moody’s acknowledges the potential for Melco’s recovery, the agency also cautioned that the company’s credit rating could be downgraded if its adjusted EBITDA returns to 5.5x-6x or if its liquidity weakens, hindering its ability to reduce debt.

Despite the challenges, other agencies like Credit Suisse have also expressed confidence in Melco’s ability to rebound, with positive catalysts and the better-than-expected recovery in Macau contributing to an improved outlook for the company earlier this year.

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