The main entrance of the Studio City casino resort, developed by Melco Crown Entertainment
The Melco Crown Entertainment Ltd. joint venture that controls its latest Macau casino project is asking banks to waive financial conditions for a year on its HKD10.85 billion (USD1.4 billion) loan, people with knowledge of the matter said.
Melco’s Studio City International Holdings Ltd. unit is requesting a so-called covenant holiday for 2016, meaning during that period its financial ratios don’t need to meet requirements imposed by the banks, the people said, asking not to be identified as the information is private. It’s also seeking other relaxations on its financial conditions after next year, including about doubling the maximum total leverage it’s allowed to as high as 9 times in the first quarter of 2017, the people said.
The company backed by billionaire Lawrence Ho said Oct. 20 it would only get 250 tables for its new $3.2 billion Studio City casino project in the world’s largest gambling hub, less than the 400 it had hoped. Fewer places for punters makes it harder for casino operators to recoup the money they’re spending on new resorts, and Las Vegas tycoon Steve Wynn last week criticized Macau for delays in giving out the allocations.
Macau’s government is seeking to broaden the economy and appeal to mainstream consumers for entertainment and shopping, much like Las Vegas has done. China President Xi Jinping in December ordered the city to reduce its reliance on casinos, an industry that makes up about 80 percent of its revenue.
Studio City will send out a formal request next week on the changes, which require agreement from at least half the banks, according to the people. A Hong Kong-based spokeswoman for Studio City said she couldn’t immediately comment.
The company’s $1.4 billion in secured loans require it to have 400 operating tables by October 2016, according to Standard & Poor’s Ratings. Studio City had hired Kirkland & Ellis as legal adviser and consultants Moelis & Co., which specializes in debt restructuring, due to the possibility of a lower than anticipated table allocation, according to Melco in an Aug. 12 statement.
A failure to meet loan requirements means banks can require immediate repayment. If that happens, bondholders are also entitled to request Melco pay back its $1.8 billion in notes outstanding right away.
Melco bought a 60 percent stake in the developer of Studio City for $360 million in 2011 from entities including hedge funds Silver Point Capital LP and Oaktree Capital Group as gaming earnings were on the rise and the Cotai Strip, where the project is being built, was seen as the next frontier in Macau.
Four years later, as the project is about to open its doors, minority shareholders, lenders and bond buyers face a much less profitable venture.
In May, S&P said Studio City’s revenue and profit growth in 2015 and 2016 will be slower than anticipated and the project will remain highly leveraged. The rating company also changed its forecast for gross gaming revenue in Macau to a drop of 20 percent to 30 percent in 2015 from previous expectations of a decline of as much as 10 percent.
Melco Crown is touting a Batman ride, Asia’s highest ferris wheel and other Hollywood-centric features for Studio City which is scheduled to open on Oct. 27. Jacqueline Poh, Bloomberg
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