Wynn Resorts Leverage Tipped to Remain Elevated, Says Moody’s

Posted on: December 27, 2022, 06:15h. 

Last updated on: December 27, 2022, 06:43h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Leverage at Wynn Resorts’ (NASDAQ: WYNN) financing unit is poised to remain elevated over the next 12 to 18 months, as the casino operator looks to get back on track in Macau.

Wynn Resorts
Wynn Palace in Macau. Leverage for operator Wynn Resorts is expected to stay high in 2023. (Image: CNBC)

In a recent report, Moody’s Investors Service forecasts leverage of 7.3x to 9.5x earnings before interest, taxes, depreciation and amortization (EBITDA) up to the next 18 months for Wynn Resorts Finance, LLC. That’s the gaming company’s financing business, which also encompasses capital needs for Wynn Macau. While those ratios are high, they’re far better than 23.2x reported for the 12 months ending September 2022. Much of the gaming company’s ability to pare leverage in 2023 could boil down to the strength of Macau’s rebound.

For Macau’s VIP segment, we expect… GGR to remain substantially below the 2019 level even in 2023-2024 because of the increasing regulatory scrutiny over the segment and the weakened junket sector,” noted Moody’s.

The research firm has a junk rating of “B1,” with a negative outlook on Wynn Resorts Finance. That credit grade has been in effect since December 2021, and is considered speculative. Bonds with that ratings are “subject to substantial credit risk.”

Wynn Resorts Finding Momentum

Over the past month, shares of Wynn Resorts are higher by 12.55%, trimming the stock’s year-to-date decline to just 0.83%. That’s noticeably better than the broader market and the gaming complex.

The previously scuffling casino stock is picking up the pace to close 2022 amid a spate of encouraging headlines — namely Macau’s decision to renew the licenses of the six established concessionaires, including Wynn Macau — and China’s recent call to scrap its zero-COVID policy.

Both issues were significant overhangs on Wynn shares. But with both out the window for now, analysts are optimistic that Wynn can generate more upside for investors in 2023. That’s while potentially making inroads when it comes to debt reduction. However, the stock isn’t a risk-free bet.

Wynn Finance’s junk credit rating is indicative of “lingering earnings weakness from efforts to contain the coronavirus and the slow recovery in Macau visitation and revenue,” according to Moody’s.

Macau is Wynn’s largest market, and a resurgence there is essential to longer-running upside for the shares and a possible credit upgrade. But Moody’s also highlighted strength in the operator’s other markets of Boston and the Las Vegas Strip. The Las Vegas-based company is also eyeing possible entry into New York City.

Speaking of Credit Upgrade…

While there’s obvious optimism pertaining to Macau heading into 2023, it could be some time before gross gaming revenue (GGR) there returns to pre-pandemic levels. As such, it’s also likely to take a while before concessionaires, including Wynn, are positioned for credit upgrades.

Moody’s says Wynn would need to drive its debt/EBITDA ratio to 6x before a credit rating upgrade would be feasible.

Such action requires Macau “casinos to remain open and ramp up closer to normal utilization” and a “restoration of sufficient earnings to generate meaningful positive free cash flow before discretionary development spending,” concluded Moody’s.