Moody’s Investors Service has downgraded SJM Holdings Limited’s corporate family rating (CFR) to Ba2 from Ba1, reflecting the gaming operator’s delays in “its execution of its refinancing plan, which raises some concern over its financial and liquidity management.”
According to Sean Hwang, a Moody’s assistant vice president and analyst, “The review for downgrade reflects the fact that SJM’s refinancing risk will remain elevated until its near-term maturities are fully refinanced. A further downgrade is possible if SJM fails to secure long-term financing to address the maturities in a timely manner.”
In a statement, the financial services firm stated that SJM has been seeking to execute new secured loan and revolver facilities of HKD19 billion to refinance its existing facilities, which will fall due on February 28, 2022, and whose balance stood at approximately HKD13 billion at the end of 2021.
However, the execution of the new facilities has been delayed due to pending regulatory approvals.
As the gaming operator is arranging for a maturity extension on the existing loans in case of a further regulatory delay, Moody expects SJM to be able to extend the maturity by one year, considering its quality assets in the SAR, and its long-standing banking relationships.
“Moody’s also expects SJM to eventually obtain the necessary approvals to execute its new banking facilities. Nevertheless, the absence of an executed refinancing arrangement at a time when the large debt maturity is forthcoming raises a degree of concern over the company’s liquidity management,” the firm added.
At the same time, the backed senior unsecured ratings on the bonds issued by Champion Path Holdings Limited and guaranteed by SJM have been downgraded to Ba3 from Ba2 by Moody’s.
The ratings remain under review for further downgrade.
Meanwhile, the rating action also reflects increasing operational uncertainties driven by the slow recovery of gaming revenue in Macau in the face of the ongoing outbreak in Greater China.
With that, Moody’s has also lowered its 2022 forecast for the city’s mass-market gross gaming revenue to around half of 2019 levels and expects a substantial recovery to take place only during 2023. The expected slower market recovery will also lead to a slower ramp-up of SJM’s new property, Grand Lisboa Palace, the firm added.
Based on these assumptions, Moody’s expects SJM’s adjusted debt to EBITDA ratio to be around 4.0x in 2023, which positions SJM more appropriately in the Ba2 rating category.
For Moody’s, an issue rated Ba2 is judged to be speculative and is subject to substantial credit risk. The modifier ‘2’ indicates that the obligation ranks in the middle of its generic rating category — that is, one notch below Ba1 and one notch above Ba3.
