Wynn debt rating affirmed despite Chinese slowdown

Ulf Buchholz

The Wynn Macau is seen Aug. 17, 2011.

A key Wynn Resorts Ltd. debt rating was affirmed Friday, even as analysts continued to warn about a growth slowdown in Macau.

Fitch Ratings in New York affirmed its ''BB'' long-term issuer default rating (IDR) on Las Vegas-based Wynn.

It also assigned a ''BBB-'' rating to subsidiary Wynn Macau’s proposed $1.5 billion credit facility that would help finance Steve Wynn’s latest Chinese resort, a $4 billion project.

Wynn’s ''BB'' IDR indicates the company’s $5.3 billion in debt is at the high end of the Fitch speculative grade scale. However, Wynn Resorts is not considered highly leveraged.

Fitch in February had also affirmed the BB issuer default rating, but at the time revised the rating outlook from positive to stable. That was because of the legal dispute emerging at the time between Kazuo Okada and the rest of the Wynn board of directors.

In Friday’s affirmed rating, the outlook remains stable.

In looking at the hotel-casino operator’s opportunities and challenges Friday, Fitch analysts said they’re revising downward their forecast for Macau gaming revenue growth this year from 20 to 15 percent.

That’s partly because of a slowdown in economic growth in China, a key market for casinos in the Chinese gambling district of Macau.

On Thursday, China’s central bank cut interest rates for the first time since 2008 to promote growth. The cut came because of recent concerns that growth in China could be falling from an annual rate of 8.5 percent a few months ago to 7 percent currently.

Nevertheless, Wynn’s current resort complex in Macau — consisting of the Wynn Macau and the Encore at Wynn Macau properties — will likely continue to generate handsome profits in the form of annual discretionary free cash flow of $900 million to $1 billion per year, Fitch said.

That money likely will be split between funding the new $4 billion Wynn resort in Macau’s Cotai district and paying dividends to shareholders, Fitch said.

Wynn’s other market, Las Vegas, is meeting growth expectations for this year, Fitch said in Friday’s ratings report.

Las Vegas in the first quarter generated net revenue of $363 million for Wynn vs. $951 million produced by Wynn's Macau properties.

''Fitch remains positive on the Las Vegas Strip recovery. Increased convention mix and minimal new room supply should bode well for revenue per available room growth. The citywide average daily room rate ($109.84) is up 3.6 percent year to date while occupancy is up (half a percentage point) to 82.8 percent,'' Fitch said in Friday’s report.

A potential downside in analyzing Wynn Resorts, Fitch said, is the continued litigation with Okada.

Wynn Resorts and Okada have accused each other of wrongdoing and, after forcefully redeeming Okada’s $2.7 billion stake in Wynn stock at a discount, Wynn plans to try to remove Okada from its board of directors.

Also of concern is the ''still-fragile state of the U.S. economic recovery'' and the potential for more gaming competition in Asia should casinos be approved in Japan, South Korea and Taiwan, Fitch said.

Another concern, at least as it relates to Wynn’s balance sheet, is Fitch’s belief that ''Wynn would be interested to develop in Florida, Japan or Taiwan if any of these jurisdictions approve large-scale casino resorts.''