Macau casino operator MGM China Holdings Ltd has requested lenders to ease financial covenants related to a credit facility of HKD9.75 billion (US$ 1.25 billion) in the face of the negative impact a novel coronavirus has had on the gaming industry in the city, a company spokesman confirmed.
Financial covenants are linked to ratios associated with earnings of MGM China before interest, taxation, depreciation and amortisation (EBITDA), as confirmed by the person. Bloomberg first published the details Friday.
Despite seeking to relax conditions attached to the financing of loans, MGM China “remains optimistic regarding Macau’s gaming industry in the long run,” the company’s spokesman said.
Macau casinos began reopening on Thursday February 20, after a 15-day closure imposed by the city government as part of efforts to curb the spread of coronavirus locally. Casino executives and financial analysts have said it may take some time for Macau’s casino industry to actually see a turnaround in market volumes, given the resumption of gaming operations.
Reuters news agency reported on Friday that the unpredictable outbreak of coronavirus, originating in the Hubei province of China, has disrupted syndications across Asia as lenders are unable to assess the damage to companies and borrowers. Companies that rely heavily on Chinese tourists were also said to be at risk because of travel restrictions, in the Asia-Pacific region in particular.
Executives of Macau casino have said that current travel restrictions make it very difficult for customers from outside Macau–particularly from mainland China, the main feeder market of the casino industry in the city–to enter the city.
The mainland authorities have stopped issuing fresh permits for individual Chinese travellers to visit Macau under the Individual Visit Scheme of the country until further notice. Tour groups are also suspended, from the mainland to Macau. The authorities said the steps are part of efforts to minimise travel in China, thus reducing the risk of further coronavirus spread.
In a filing on August 12, MGM China told the Hong Kong stock exchange that it had an arrangement with some lenders, whereby the lenders agreed to make available to the company a revolving credit facility in an aggregate sum of HKD9.75 billion, with a final maturity date on May 15, 2024.
The revolving credit facility will bear interest at a fluctuating rate per annum based on the Hong Kong InterBank Offer Rate (HIBOR) plus a margin–between 1,625 per cent and 2,75 per cent–which, according to the August filing, would be calculated by the company’s leverage ratio. The proceeds from this credit facility were to be used to refinance the then existing senior secured credit facilities of MGM China, and the filing indicated for ongoing working capital needs as well as other general corporate purposes.
As of June 30, 2019, MGM China’s net debt funding expense borrowings amounted to HKD16.92 billion; and the company’s net debt amounted to almost HKD13.51 billion, according to its September interim report. The casino company had a gearing ratio of 57.8 per cent at the end of the first half of 2019. The amount of cash and cash equivalents that it kept during the time was around HKD3.15 billion.
In comments included in a February 13 filing to the Hong Kong Stock Exchange, MGM China said the coronavirus crisis “could have a material effect on MGM China’s results of operations for the first quarter of 2020 and potentially thereafter.” MGM Resorts International’s management, MGM China’s parent company, said at a conference call with investment analysts that the casino closure step was being taken in Mac.
Additionally, the company said:“The extent to which the coronavirus impacts the company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and any additional actions taken to contain it from spreading.” Management of rival casino operator Wynn Resorts Ltd said on February 6 that the group’s two bank facilities had maintenance covenants, but that the group had enough buffers in financial terms to sustain the closure of its two casinos in Macau.
Wynn Resorts president and chief financial officer Craig Billings said: “The U.S. facility has more than ample covenant headroom to sustain a very prolonged period of suppressed business volumes in Macau and the Macau facility does have a maintenance covenant that is sensitive to Macau EBITDA.
He added: “And – as I suspect several concessionaires do – we already have a game plan in place to manage that [covenants of the Macau bank facility] to the extent that the shutdown is extended – but it would have to be quite extended.”