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September 20, 2021

Resort struggling to attract new customers

S&P warns Studio City Casino Macau could default on USD 1.41B loan

S&P warns Studio City Casino Macau could default on USD 1.41B loan
Ratings agency Standard and Poor’s Financial Services has issued a negative outlook for Studio City Casino Macau bonds and warned that the project could soon default on its loan.
Macau | 08/22/2016

Ratings agency Standard and Poor’s Financial Services has issued a negative outlook for Studio City Casino Macau bonds and warned that the project could soon default on its loan.

S

tudio City’s new non-gaming facilities do not appear to be a hit. With the number of visitors to Macau having fallen by 2.6 percent year-on-year to 30.7 million in 2015, the resort has struggled to attract new customers despite the publicizing of non-gaming activities like its Batman ride and a magic show.

On top of that, the casinos strategic positioning as a non-VIP gaming destination – an attempt to appeal to families and China’s growing middle class – also doesn’t seem to be working.

Standard and Poor’s has therefore issued a warning that the resort could soon default on the USD1.41 billion loan used to complete the construction of the hotel

The warning comes off the back of a 42.5 percent slide in the value of bonds issued to investors.

An additional report published by Bloomberg revealed that Studio City might also have trouble borrowing cash to repay its existing debts, speculating that Melco Crown Entertainment’s partners, American hedge funds Silver Point and Oaktree Capital, could be the first financial victims if the resort if to default.

The report also noted that Hong Kong-listed Melco Crown Entertainment, which holds 60 percent of the investment, is distancing itself from any rescue scenarios. According to Bloomberg, representatives of the company said: “Studio City Casino Macau is within an entirely separate credit group and its debt is non-recourse to Melco Crown Entertainment Limited. […] Investors should not assume that Melco Crown Entertainment Limited will provide any financial support to Studio City Casino Macau or that it would step in for Studio City Casino Macau.”

Bloomberg also alleged that many analysts believe that Melco Crown Entertainment is seeking to take full control of the Cotai resort, and that the negative rating from Standard and Poor’s will strengthen the operator’s negotiating hand

Lawrence Ho, the operator’s CEO, told Barron’s Asia earlier this year that he was in “no rush” to buy out the minority partners in the development due to disagreements on the valuation of the property.

Studio City, which opened in October last year, has not fared as well as analysts predicted. Optimism had initially run high for what was considered the first resort of its kind, targeting the gaming mass market and promoting non-gaming activities. However, a revenue of less than USD200 million in the first quarter of 2016, disappointed market observers prompting Lawrence Ho to blame the resort’s marketing team in June, who he said, “need[ed] to do a better job.” 

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