Las Vegas Sun

February 13, 2012

Currently: 53° | Complete forecast | Log in

Analysts give boost to Wynn Resorts

By Steve Green (contact)

Friday, July 23, 2010 | 12:43 p.m.

Sun Coverage

Wynn Resorts Ltd. of Las Vegas received a boost this week when key debt ratings were lifted by Fitch Ratings and Moody's Investors Service.

Fitch this week raised Wynn Resorts' issuer default rating to "BB-" from "B+" thanks to a stronger than expected performance for Wynn Macau and this week's refinancing of $1.32 billion in Wynn Las Vegas debt.

Fitch, in its report, noted Wynn Resorts' Las Vegas properties Wynn Las Vegas and Encore face challenges because Las Vegas Strip operating trends remain soft due to the oversupply of hotel rooms in the market.

But Wynn is better positioned than some other operators, analysts said.

"With the $575 million Encore at Wynn Macau expansion and the $68 million Encore Beach Club project in Las Vegas completed in the second quarter, capex (capital spending) can roll down to primarily maintenance levels in upcoming quarters," Fitch said in its report. "As a result, Fitch estimates the company has the ability to generate north of $500 million of gross free cash flow annually, which will fund roughly $120 million of regular dividend payments that commenced in 2010, as well as additional growth projects and investments. The ability to re-invest in its Las Vegas properties while other operators on the Strip are constrained is a key near-term competitive advantage, in Fitch's view."

Separately, Moody's on Friday affirmed Wynn Resorts "Ba3" corporate family and probability of default ratings and boosted the company's rating outlook to positive from stable.

"The affirmation of Wynn's ratings consider Moody's favorable view of the consolidated entity's overall growth prospects, the company's moderately high leverage, very good liquidity, and the quality, popularity, and favorable reputation of Wynn's casino properties -- a factor that continues to distinguish the company from most other gaming operators. It also reflects the strong performance of the company's Macau operations, and Moody's expectations that such performance will continue," Moody's said.

"Key rating concerns include the challenging operating environment and supply growth in Las Vegas that will continue to pressure Wynn's earnings. And although the strength of Wynn's Macau operations supports its rating, Moody's does have some concern over the company's significantly exposure to Macau, as well as China's regulatory environment. Although gaming has taken place in Macau for a number of decades and the government has reaffirmed its support for the healthy development of the sector, its post-liberalization history remains short, with no stable track record in the existing regulatory environment. Also factored into the rating is Moody's expectation that Wynn will continue to pursue the development of high risk/high reward large-scale integrated casino and entertainment resorts," Moody's said.

Moody's rating action also acknowledges Wynn's refinancing of the $1.32 billion in debt, which Moody's said improves Wynn's financial flexibility.

Standard & Poor's also weighed in on the plan to replace $1.32 billion in debt due in 2014 with debt due in 2020.

"While this transaction would substantially improve the debt maturity profile of Wynn Las Vegas, as any meaningful debt maturities would be pushed out to 2015, it does not result in rating upside at this time. This is primarily because our 'BB' corporate credit rating on Wynn Las Vegas and its parent company, Wynn Resorts Ltd., reflects Wynn's significant current debt burden, the high levels of competition in the Las Vegas and Macau markets, our expectation for modest declines in cash flow generation in Las Vegas in 2010, and significant expected debt-financed development plans in Cotai (Macau)," Standard & Poor's said. "Still, the company's assets are among the highest quality in the gaming sector, and we expect continued strong cash flow trends in Macau. Furthermore, we expect Wynn's solid liquidity position to allow the company to weather a prolonged gaming downturn in the United States and fund its longer term development plans in Cotai while preserving current credit quality."

Wynn this week pre-announced second quarter results for Wynn Las Vegas and Encore and analysts weren't surprised at the numbers.

Preliminary numbers for the properties showed they had an operating loss of $17.2 million vs. an operating loss of $8.3 million in the year-ago quarter. Net revenue increased 1.7 percent to $318 million.

The properties achieved an average daily hotel rate of $197 for the quarter ended June 30, down from $218 in the second quarter of 2009.

Discussion: comments so far…

Comments are moderated by Las Vegas Sun editors. Our goal is not to limit the discussion, but rather to elevate it. Comments should be relevant and contain no abusive language. Comments that are off-topic, vulgar, profane or include personal attacks will be removed. Full comments policy. Additionally, we now display comments from trusted commenters by default. Those wishing to become a trusted commenter need to verify their identity or sign in with Facebook Connect to tie their Facebook account to their Las Vegas Sun account. For more on this change, read our story about how it works and why we did it.

Only trusted comments are displayed on this page. Untrusted comments have expired from this story.

No trusted comments have been posted.

Post a comment

Commenting requires registration.

Comments are moderated by Las Vegas Sun editors. Our goal is not to limit the discussion, but rather to elevate it. Comments should be relevant and contain no abusive language. Comments that are off-topic, vulgar, profane or include personal attacks will be removed. Full comments policy.

If you would like to submit your comment as a letter to the editor, you may submit it here.

Most Popular

  • Viewed
  • Discussed
  • E-mailed
  • Facebook