NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BB+' rating to Wynn America, LLC's (Wynn America) $1.25 billion senior secured credit facility consisting of a $375 million revolver due 2019 and an $875 million delayed draw term loan due 2020.
Fitch has also assigned a 'BB' Issuer Default Rating (IDR) to Wynn America and affirmed the 'BB' IDR for Wynn Resorts, Ltd (Wynn Resorts) and its subsidiaries including Wynn Las Vegas LLC (Wynn Las Vegas), Wynn Macau, Ltd, and Wynn Resorts (Macau), S.A. (Wynn Macau S.A.; collectively Wynn). All of the IDRs are linked. The full list of the affirmed issue ratings follows at the end of this release.
The Rating Outlook is Stable.
Proceeds from the credit facility along with equity contributions will be used to fund the $1.6 billion Wynn Everett project in Massachusetts. Wynn Resorts provides a completion guarantee for the project. The credit facility will also benefit from a secured guarantee from the Massachusetts subsidiaries and will benefit from the equity in Wynn Las Vegas although Wynn Las Vegas is not a guarantor.
RATING DRIVERS
Fitch links the IDR of Wynn America to the rest of the corporate family. Wynn Las Vegas will be placed under Wynn America, increasing the strategic importance of Wynn America. The 'BB+' rating on Wynn America credit facility reflects the considerable asset coverage once Wynn Everett opens around late 2017. Maximum 1st lien debt permitted under the credit facility's credit agreement is $1.75 billion, which is the credit facility plus a $500 million additional 1st lien carveout (or $250 million before the Everett project opens). Fitch forecasts $325 million EBITDA for Wynn Everett, equating to 5.4x leverage through the maximum first-lien permitted. Additionally, Fitch estimates there is approximately $3 billion of equity in Wynn Las Vegas that benefits Wynn America.
Fitch views Wynn's Massachusetts project favorably from a return on investment (ROI) standpoint, even after accounting for the $1.6 billion budget. Fitch's 20% ROI estimate reflects Wynn Everett's position as the closest casino to the Boston area, including the affluent Norfolk and Middlesex counties. The ROI could be pressured somewhat if and when another casino opens in the southeast Massachusetts region (Region C). The Massachusetts Gaming Commission plans to award the Region C license by August 2015 per its website. However, the Region C license is designated for a Native American tribe meaning that the land has to be taken into trust first by the Department of Interior.
The 'BB' IDR on Wynn reflects the financial strength of the Macau subsidiary (net debt is minimal and Wynn Macau property EBITDA is more than $1.3 billion), which offsets the weaker financial strength at the Las Vegas subsidiary (roughly 5.6x net leverage for the LTM period with $489.7 million of property EBITDA after corporate expense). Linkage is supported by strong strategic linkage between the entities (i.e. common branding, management, cross-marketing, etc.) and a precedent of support to the weaker Las Vegas subsidiary.
Wynn's $5.6 billion project pipeline ($4.3 billion remains to be spent) is the largest in the gaming industry. The $2.7 billion remaining cost for the Cotai project is fully funded between cash on hand, projected free cash flow, and $1.48 billion available on the revolver in Macau. Fitch also projects that Wynn Macau can maintain adequate distributions to Wynn to maintain the parent's $1.50 per quarter per share regular dividends (about $600 million annually).
In Fitch's base case, consolidated leverage adjusted for minority interest income increases to 5.5x by year-end 2015 but begins to step down in 2016 as the Cotai project opens. Leverage reaches 4x by year-end 2018 after the Massachusetts project opens. In Fitch's projections, growth on the Las Vegas Strip offsets the recent softness in Macau until 2016. Fitch's 2016 EBITDA forecast includes half a year of Wynn Palace ($660 million full year EBITDA estimated).
Fitch remains positive on the Las Vegas Strip outlook, especially relative to other U.S. markets. Fitch projects that the market will manage mid-single-digit RevPAR and low single-digit gaming revenue and visitation growth over the next two to three years. Fitch is forecasting negative 1% gaming growth for Macau in 2015, which is largely driven by the expected weakness in 1H15. Longer-term, Fitch remains favorable on Macau, as Fitch continues to hold that Macau and the greater China market remain underpenetrated and expects gaming revenue growth to be driven by new supply and infrastructure development. The Chinese economy will continue to grow (6.8% in 2015 and 6.5% in 2016), anchoring mass market demand.
RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
--Consolidated gross leverage approaching 4x and net leverage declining below 4x following the ramp up of Wynn Palace and Wynn Everett projects. An earlier upgrade is possible if Fitch gains a fair amount of comfort that the forecast leverage will be in line with these thresholds once the project(s) ramps up. (Fitch forecast: gross leverage 5.5x in FY15 and 4.0x in FY18)
--A resolution of Okada related dispute and investigations by U.S. authorities;
--Continuation of favorable operating outlook for the Las Vegas Strip and stabilization in Macau.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
--Gross leverage sustaining above 5x (6.5x before development projects ramp up) (Fitch forecast: gross leverage 5.5x in FY15 and 4.0x in FY18);
--Unfavorable resolution with respect to Okada related dispute and investigations by U.S. authorities;
--Reversal of the positive operating environment on the Las Vegas Strip and continued negative trends in Macau.
Fitch assigns the following ratings to Wynn America, LLC:
--Long-term IDR 'BB'; Outlook Stable;
--Senior secured credit facility 'BB+'.
Fitch affirms the following Wynn corporate family ratings:
Wynn Resorts, Limited
--Long-term IDR at 'BB'; Outlook Stable.
Wynn Las Vegas, LLC
--Long-term IDR at 'BB'; Outlook Stable;
--Senior secured first mortgage notes (FMNs) at 'BB+';
--Senior unsecured notes at 'BB'.
Wynn Resorts (Macau), SA
--Long-term IDR at 'BB'; Outlook Stable;
--Senior secured credit facility at 'BBB-'.
Wynn Macau, Ltd
--Long-term IDR at 'BB'; Outlook Stable;
--Senior notes at 'BB'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 28, 2014);
--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (Nov. 19, 2013);
--'U.S. Gaming Recovery Models - Second-Quarter 2014' (Sept. 26, 2014);
--'Fitch 50 (Structural Profiles of 50 Leveraged U.S. Credits)' (July 8, 2014);
--'U.S. Regional Gaming: Long-Term Headwinds Abound (A Study of Secular Trends in U.S. Regional Gaming)' (July 21, 2014).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
Recovery Ratings and Notching Criteria for Non-Financial Corporate
Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=813588
U.S. Gaming Recovery Models --- Second-Quarter 2014
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=778768
Fitch 50 (Structural Profiles of 50 Leveraged U.S. Credits)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752040
U.S. Regional Gaming: Long-Term Headwinds Abound (A Study of Secular
Trends in U.S. Regional Gaming)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751939
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=931796
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