Moody’s, Fitch signal caution on SJM’s over-elevated leverage

Moody’s Ratings has lowered its outlook for SJM Holdings Limited, becoming the second major ratings agency to do so this month. Citing concerns over the company’s high financial leverage and uncertainty about its ability to retain customers following the planned closure of its satellite casinos by year-end, Moody’s affirmed its “Ba3” corporate family rating (CFR). Still, they changed their outlook to negative, while Fitch affirmed its “BB-” rating but issued a negative outlook.

In a note, Moody’s said it had affirmed SJM’s Ba3 CFR and B1 backed senior unsecured rating on bonds issued by the company’s subsidiary Champion Path Holdings Limited. However, it changed the outlook from negative to stable, citing concerns over elevated financial leverage.

“The change of outlook to negative reflects a high likelihood that SJM’s financial leverage will remain elevated over the next 12 to 18 months, given its weaker-than-expected results in the first six months of 2025,” said Stephanie Lau, Moody’s Ratings Vice President and Senior Credit Officer.

“There is uncertainty around customer retention or the extent of earnings generation from the satellite table reallocation, and the likelihood of higher debt incurrence to fund satellite casino acquisitions,” noted Moody’s.

SJM has previously stated that while it will shutter at least seven of its nine existing satellites, it hopes to acquire two (L’Arc and Ponte 16) fully. The concessionaire also previously stated that it would relocate tables at closing satellites to its wholly-owned properties.

Assuming all goes according to plan, Moody expects SJM’s leverage to improve to about 5.7x in 2026, driven by a 15% to 20% increase in EBITDA and a modest debt reduction.

“Higher earnings will be mainly supported by the reallocation of satellite casino tables to SJM’s existing self-owned properties,” the agency said. “Other contributing factors include continued moderate growth in gaming revenue, a further ramp-up of Grand Lisboa Palace and a normalization of the win rates.”

Moody’s explained that SJM’s liquidity is considered ‘adequate’, with cash holdings of HKD2.1 billion and available revolving credit facilities sufficient to cover cash needs and maturing debt over the next 12-18 months.

The ratings agency wrote that the company will likely need to secure waivers for potential breaches of financial covenants in the coming quarters, adding, “We do not expect difficulty in obtaining them.”