Drop in Macau Revs is Credit-Negative for Melco Crown (MPEL), MCE Finance, Studio City Finance - Moody's

Moody's Investors Service says declining gaming revenues in Macau are credit negative for rated gaming companies including MCE Finance Limited (Ba3 positive), Melco Crown (Macau) Limited (Nasdaq: MPEL) (Ba3 positive), and Studio City Finance Limited (B2 stable).

Nevertheless, their operational track record and financial profile continue to support their ratings and outlooks.

The Gaming Inspection and Coordination Bureau of Macau reported on 2 January 2015 that Macau's gross gaming revenues dropped 30.4% in December 2014, compared to December 2013.

For FY 2014, it fell 2.6% year-on-year to MOP351.5 billion, driven mainly by a material decline in VIP gaming as the Chinese government's continues its efforts to combat corruption and slowing economic growth in China.

"Declining gaming revenue will weaken the companies' revenue and EBITDA generation, which in turn diminishes their debt-servicing capacity," says Kaven Tsang, a Moody's Vice President and Senior Analyst.

"Nevertheless, MCE Finance's established operations and strong financial profile will buffer it from a slowing market," adds Tsang.

Moody's expects that MCE Finance's financial profile will remain strong for its ratings, supported by its low debt leverage with projected debt/EBITDA at around 1.5x in the next two years, and robust liquidity.

MCE Finance had cash and deposits of around USD1.3 billion and undrawn banking facilities of USD401 million as of 30 September 2014, which fully covers its capex of USD400-USD500 million—as estimated by Moody's—and debt repayments of USD257 million for the coming 12 months.

On the other hand, a weaker operating environment will make it more challenging for Studio City Finance to ramp up its Studio City Project, which is scheduled to open in mid-2015, and to realize its revenue-growth and deleveraging plan in the next one to two years.

Nevertheless, such risks have been considered in its B2 corporate family rating and are partly mitigated by the project's fully-funded model and the reduced risks of significant cost overrun and construction delay as the project nears completion by mid-2015.

Moody's anticipates that Studio City Finance's financial metrics will remain weak in 2015 but could improve in 2016 with projected debt/EBITDA declining to around 6x, after Studio City completes a full operational year.

Meanwhile, Moody's notes that Melco Crown Entertainment Limited (unrated), the parent company of the above rated entities (collectively the Melco Crown group), announced on the same day that it had submitted an application to the Stock Exchange of Hong Kong to voluntarily withdraw its shares from the Main Board of the Stock Exchange for various cost and administrative reasons. The withdrawal is subject to shareholders' approval.

The company also said it will maintain its primary listing of American depositary shares (ADSs) on the NASDAQ market. The company's ADSs have been listed on the NASDAQ since December 2006.

In Moody's view, the proposed delisting will have a limited impact on the Melco Crown group's access to funding, corporate governance practices and information disclosure. Its corporate governance standard and information disclosure will likely continue to comply with NASDAQ market requirements.

"The company has a long listing history in the NASDAQ market and the ongoing listing on the NASDAQ market will allow the company to raise funds from the equity market, if needed" says Tsang.

The principal methodology used in these ratings was the Global Gaming Industry published in June 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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