Studio City credit accord positive, Moody’s says

The agreement to amend certain of the covenants on its $1.4 billion facility are credit positive to Studio City Finance, Moody’s Investors Service says.

However, the ratings firm has maintained the company’s B2 family rating, B3 senior unsecured rating and its negative outlook.

“The amendment to lower the required number of gaming tables is credit positive because it has alleviated the risk of covenant breach and immediate repayment of the $1.4 billion credit facilities,” says Kaven Tsang, a Moody’s Vice President and Senior Credit Officer.

“The amendments to the financial covenants and the rescheduling of the testing dates will also reduce the risk of non-compliance in the near-term, as the initial operation of the Studio City project will likely stay weak, given the challenging operating environment in Macau’s gaming sector,” adds Tsang.

Moody’s says Studio City, which opened on Oct. 27th, will benefit from support from parent company Melco Crown Entertainment, which will help the company manage risks.

The ratings outlook remains negative, reflecting an expectation of weak cash flow generation for its Studio City project in the next 12-18 months, which will continue to pressure its liquidity and delay its deleveraging.

Moody’s expects Studio City Finance’s adjusted debt/EBITDA to be around 8x in 2016 — which weakly positions it at the B2 rating level — before it improves to around 5.5x-6.0x in 2017.