Fitch Rates Wynn Las Vegas' $1.75 Billion Senior Unsecured Notes Due 2025 'BB'

NEW YORK--()--Fitch Ratings has assigned a 'BB' rating to the Wynn Las Vegas, LLC's (Wynn Las Vegas) announced issuance of $1.75 billion senior unsecured notes due 2025. Wynn Las Vegas LLC's Issuer Default Rating (IDR) is 'BB' and is linked to Wynn Resorts, Ltd's (Wynn; parent) IDR. The Rating Outlook is Stable.

Fitch sees the issuance largely as neutral for Wynn Las Vegas credit given the interest savings and recognizes the increased debt and reduction of covenants vis-a-vis the refinancing of the 2020 first mortgage notes (FMNs). The proceeds of the proposed senior note will be used to fund a cash tender for $377 million in outstanding 7.875% FMNs due 2020 and $1.227 billion in outstanding 7.75% FMNs due 2020 with balance used for general corporate purposes. The issuance increases debt at Wynn Las Vegas by about $150 million but reduces interest expense by roughly $35 million - $45 million annually.

The 2025 notes will rank pari passu with Wynn Las Vegas' existing FMNs due 2022 and 4.25% senior unsecured notes due 2023. The 2025 notes will not have meaningful restrictive covenants, similar to the 2023 notes, except for lien covenants limiting liens to 15% of total assets (based on GAAP). The notes would become secured to the extent Wynn Las Vegas exceeds the 15% threshold or if the remaining 2022 FMNs become secured. The 2022 FMNs have a springing lien, which activates if Wynn Las Vegas issues any secured debt and the 2022 FMNs are callable in 2017.

Pro forma for the transaction, Fitch calculates Wynn Las Vegas' leverage and interest coverage using last-12-month (LTM) EBITDA ending Dec. 31, 2014 after corporate expenses and management fees of $61 million at 7.0x and about 3.0x, respectively. Fitch estimates that adjusting for normalized table hold leverage would be closer to 7.5x.

The one-notch rating uplift of the 2022 FMNs relative to the 2023 and 2025 unsecured notes reflects the FMNs tighter covenants including the springing lien provision and the additional debt test.

RESTRICTED PAYMENT COVENANTS LOOSEN

The looser restricted payment (RP) covenants in the remaining FMNs are a slight negative for Wynn Las Vegas creditors. However, the greater RP flexibility is beneficial to Wynn, which has considerable obligations including a $600 million regular dividends annually and a $5.8 billion project pipeline ($4 billion net of amount spent to date). Fitch links the IDRs of the parent and Wynn Las Vegas because of the latter's strategic importance to the parent and a history of parent support.

The refinancing of the 2020 FMNs will give Wynn Las Vegas greater freedom to pay management fees to Wynn and changes the RP basket calculation to an EBITDA-based one from a net income-based one. The 2020 FMNs that are being tendered do not allow management fees to be paid out to Wynn as long as leverage at Wynn Las Vegas is greater than 6.5x, in which case the fees are accrued. As of Sept. 30, 2014 Wynn Las Vegas had $189 million of accrued liabilities to affiliates outstanding relative to approximately $300 million of cash on hand net of cage cash ($50 million estimated by Fitch). The management fees due from Wynn Las Vegas for the LTM period ending Dec. 31, 2014 were $25 million.

The RP basket per the 2020 FMN indentures is based on 50% of cumulative net income and per the 2022 FMN indenture on EBITDA minus 1.4x of interest expense, the latter of which is looser. Fitch estimates that based on LTM EBITDA and pro forma interest expense assuming 5% coupon on the 2025 notes, permitted RP per the 2022 FMN carveout would be about $295 million per year.

WYNN AMERICA LONG-TERM POSITIVE FOR WYNN LV

Long-term Fitch views the creation of Wynn America LLC favorably due to Fitch's favorable outlook for Wynn's Massachusetts $1.6 billion - $1.8 billion Wynn Everett project. However, Wynn may increase its reliance on Wynn Las Vegas cash flows during the development phase of Wynn Everett, which will last roughly three years. As indicated above Wynn will be able to pull roughly $295 million of cash annually from Wynn Las Vegas per the 2022 FMN RP basket plus the accrued management fees. Additional debt at Wynn Las Vegas is subject to a 2x fixed charge coverage test per the 2022 FMN indenture. The 2023 and 2025 unsecured notes have no additional debt tests.

Wynn America will be an indirect parent of Wynn Las Vegas and is the owner of Wynn's Massachusetts project (Wynn MA). Wynn Las Vegas is not a guarantor of Wynn America's $1.75 billion credit facility but Wynn provided a completion guarantee on the credit facility and may look to Wynn Las Vegas to support the project in light of the heavy cash commitments elsewhere and the current operating weakness in Macau.

Fitch forecasts $325 million EBITDA for Wynn Everett and views the project favorably from a return on investment (ROI) standpoint. Fitch's favorable outlook for Wynn Everett considers that the casino will be the closest casino to the Boston area, including the affluent Norfolk and Middlesex counties.

ROOM IN THE RATING FOR MACAU WEAKNESS

Wynn reported a 29% property EBITDA decline for 4Q'14 pushing its gross consolidated gross leverage to 5.1x from 4.8x at end of the last quarter (Fitch subtracts income attributable to minority interest from EBITDA when calculating Wynn's leverage). This at the high end of Wynn's 4x - 5x gross leverage range for 'BB' IDR, but below Fitch's 6.5x through the development cycle threshold.

Fitch expects leverage to remain elevated at or above 5x as Fitch projects negative 4% revenue growth in Macau for 2015. Macau, the source of the recent decline, represents about 70% of Wynn's property EBITDA. Later in 2015 Wynn will draw $875 million on its delayed draw term loan at Wynn America and may start drawing on its $1.55 billion revolver in Macau to develop the $4 billion Wynn Palace ($1.8 billion spent to date).

Fitch expects leverage to return to below 5x around 2017 once Wynn's projects in Macau and Massachusetts start to ramp up. In the meantime, liquidity is adequate. Consolidated available liquidity including excess cash and revolver and delayed draw availability is $4.9 billion relative to about $4 billion of remaining project capex. Fitch estimates cumulative FCF over the next three years after dividends but before project capex at nearly $2 billion. The nearest maturity is the Macau credit facility with the revolver and half of the term loan coming due in 2017.

POSITIVE LONG-TERM LAS VEGAS OUTLOOK WITH ASIA BACCARAT CAVEAT

Fitch is positive on the Las Vegas Strip, projecting that the market will manage midsingle-digit RevPAR and visitation growth over the next two to three years. This outlook is supported by good prospects for continued increase in the mid-week convention mix and by the increasing air capacity. McCarran International Airport's flight capacity measured by seats for April 2015 is up 3.8% relative to the same period in 2014.

Las Vegas total gaming revenues and baccarat revenues were down 2% and 6% in 2014, respectively. The baccarat revenues were pressured towards the latter part of the year. Wynn Las Vegas' casino revenues are especially reliant on baccarat and table drop at the property was down 12% in the fourth-quarter. Baccarat revenues are hard to forecast for 2015 and the source of the pressure is hard to pinpoint. On one hand, Chinese visitation to the U.S. should grow 19% according to the U.S. Department of Commerce forecast, but on the other hand an anti-money laundering drive by the U.S. authorities and an anticorruption crackdown in China may negatively affect baccarat volume.

The $4 billion Resorts World Las Vegas due to open around 2017 will be a positive for the Las Vegas Strip and should benefit Wynn Las Vegas as it will pull the center of gravity north.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for Wynn include:

--Negative 4% market-wide gaming revenue growth in Macau for 2015 and low-to-mid single digit same-store growth thereafter;

--Low-to-mid single digit total revenue growth on the Las Vegas Strip led by visitation and RevPar growth;

--$660 million of incremental EBITDA from Wynn Palace (mid-2016 opening) and $325 million from Wynn Everett (early 2018);

--Total consolidated debt increases to $9.8 billion in 2017 after draws on credit facilities to fund Wynn Palace and Wynn Everett;

--Regular parent level dividends at approximately $600 million per year with no special dividends assumed.

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 rates Wynn and its subsidiaries as follows:

Wynn Resorts, Limited

--Long-term IDR 'BB'; Outlook Stable.

Wynn Las Vegas, LLC

--Long-term IDR at 'BB'; Outlook Stable;

--First mortgage notes (FMNs) 'BB+';

--Senior unsecured notes 'BB'.

Wynn America, LLC

--Long-term IDR 'BB'; Outlook Stable;

--Senior secured credit facility 'BB+'.

Wynn Resorts (Macau), SA

--Long-term IDR 'BB'; Outlook Stable;

--Senior secured credit facility 'BBB-'.

Wynn Macau, Ltd

--Long-term IDR 'BB'; Outlook Stable;

--Senior notes '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. 18, 2014);

--'U.S. Leveraged Finance Spotlight -- Wynn Resorts, Ltd.' (Sep. 4, 2013);

--'Fitch Rates Wynn America's Credit Facility 'BB+'; Assigns 'BB' IDR' (Nov. 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. Leveraged Finance Spotlight -- Wynn Resorts, Ltd.

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=716838

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=979483

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Contacts

Fitch Ratings
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Alex Bumazhny, CFA
Director
+1-212-908-9179
Fitch Ratings, Inc.,
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Michael Paladino, CFA
Senior Director
+1-212-908-9113
or
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Managing Director
+1-212-908-9161
or
Media Relations:
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alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Alex Bumazhny, CFA
Director
+1-212-908-9179
Fitch Ratings, Inc.,
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Michael Paladino, CFA
Senior Director
+1-212-908-9113
or
Committee Chairperson
Steven Marks
Managing Director
+1-212-908-9161
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com