Posted on: November 27, 2024, 04:20h.
Last updated on: November 27, 2024, 04:20h.
Wynn Resorts’ (NASDAQ: WYNN) finance unit saw its credit outlook upgraded to “positive” from “stable” by Moody’s Investors Service. The research firm maintained a “B1” rating on Wynn’s debt — four notches into junk territory.
Moody’s cited the ongoing recovery in Macau as well as strength at Wynn’s Las Vegas casinos and Encore Boston Harbor as among the reasons for the upgrade. Third-quarter results for Macau operators, including Wynn Macau, were tepid, but gross gaming revenue (GGR) in the Chinese territory has improved mightily since the start of the coronavirus pandemic and that trend is expected to continue in 2025.
The rating affirmation and positive outlook reflect our projection of improved leverage for Wynn in the mid 5x debt/earnings before interest, taxes, depreciation, and amortization (EBITDA) range for 2024, as Macau’s gaming market has recovered significantly and continued strong performance at the company’s Las Vegas and Encore Boston Harbor properties have supported revenue and EBITDA growth,” observed Moody’s.
The ratings agency added that Wynn’s improved credit profile is a reflection of “the quality, popularity, favorable reputation of the company’s resort properties,” which Moody’s says are distinguishing factors.
Wynn ‘Positive’ Outlook Has Substance
Wynn concluded the September quarter with cash on hand of $1.34 billion and debt of $11.79 billion and its efforts to trim the latter figure are among the reasons for the Moody’s outlook upgrade.
The research firm noted the Las Vegas-based gaming company has worked diligently to pare its debt burden. Such efforts are often viewed favorably by ratings agencies and can have the added benefit of improved credit grades, which result in lower financing costs.
“The positive outlook also reflects the company’s recent reduction in debt, with nearly $1.2 billion of debt permanently reduced. The positive outlook also incorporates our view that the company will maintain good liquidity, with ample cash balances,” according to Moody’s.
The research firm also noted the positive outlook on Wynn is based on expectations of ongoing EBITDA improvement in Macau as well as broader revenue growth. If realized, those factors should help the operator keep liquidity sturdy while reducing outstanding liabilities.
Wynn UAE Casino Could Help
Wynn’s current portfolio is comprised of two Macau integrated resorts, Wynn and Encore Las Vegas, and Encore Boston Harbor. That’s not much in the way of geographic diversity, which Moody’s noted is a potential credit risk.
The operator’s under construction casino resort in Ras Al Khaimah, United Arab Emirates (UAE) adds geographic diversity. That venue, named Wynn Al Marjan Island, is expected to open in early 2027 and will enjoy a multi-year monopoly in what could eventually become one of the largest gaming markets in the world.
As for a potential ratings upgrade, Moody’s says Wynn needs to maintain ample liquidity and continue cutting debt to put an upgrade into play.
“Ratings could be upgraded if debt/EBITDA on a Moody’s adjusted basis is maintained well below 6x. Good liquidity and continued revenue growth with strong positive free cash flow would also be needed for an upgrade,” concluded the ratings agency.
