Report: Melco readies for poor Macau outcome

Lawrence Ho

Melco Crown Entertainment has confirmed that Studio City International Holdings appointed Moelis and legal firm Kirkland & Ellis “because of the possibility that the table allocation for Studio City’s gaming area [in Cotai] may be lower than anticipated,” The Australian reported yesterday.
Melco Crown chief executive Lawrence Ho warned last week that a low table allocation would have a “drastic impact’’ on the company’s financial modeling for the project, which is due to open on October 27.
Studio City is 60-percent owned by Melco Crown and 40-percent owned by an entity called New Cotai, the latter of which is, in turn, a vehicle 78-percent owned by Silver Point Capital and 22-percent owned by Oaktree Capital Management.
Melco Crown revealed earlier this year that the project would require a minimum of 400 gaming tables. Otherwise, it would risk being technically in default with its lenders for a sum of USDUS1.4 billion, loaned for the development. ANZ Bank is a member of the banking syndicate that lent money to the project.
Deutsche Bank said last week that it believed Studio City would receive a similar number of new tables, as granted by the Macau government, to rival operator Galaxy Entertainment Group, which was allocated 150.
The statement yesterday from Melco Crown was issued in response to a report published in Debtwire, headlined: “Studio City arouses restructuring advisory interest ahead of likely breaches on expected table quota shortfall”.
The Debtwire report said that Studio’s City’s unsecured bonds had been “holding up above par” in trading, “mostly in anticipation [of the fact] that the banks would waive or amend the covenants as required”.
It also speculated that “Melco would double down if needed”, indicating that the group backed by Packer and Ho would continue to support the project. The loans and bonds on Studio City were structured non-recourse to Melco. The report also claimed that Melco would probably face little resistance to winning a relaxation of the loan covenants.
The operator could also transfer tables from its other projects in Macau to make up for the shortfall, but “this would be complicated by the fact it only owns 60 per cent of Studio City,” Debtwires report states.
In an interview last week with Macau Daily Times, Lawrence Ho noted that he was “hopeful” that the Macau government, when allocating the number of tables for Studio City’s complex, would recognize Melco’s contribution to Macau’s vision of becoming a world-class tourism destination. “We’ve always supported the government’s vision for Macau. We should be rewarded for this,” he said. PC