KUALA LUMPUR: fitch Ratings has assigned a final rating of 'A-' to Resorts World Las Vegas LLC's (RWLV, A-/Stable) senior secured US$1.2bil revolver* and US$400mil term-loan facilities due 2024 and the senior unsecured US$1bil 4.625% notes due 2029 issued by RWLV and its unit RWLV Capital Inc.
The final rating on the loan facilities and notes is in line with expected rating assigned on March 21, 2019, and follows the receipt of final documents conforming to earlier information.
RWLV, an indirect unit of Genting Bhd
(Genting, A-/Stable), is building a US$4bil integrated resort on the Las Vegas strip.
The rating agency said RWLV plans to finance a portion of the cost of construction and operation using proceeds from the facilities and notes.
The project will be the first major Las Vegas property built in a decade and the third multibillion-dollar integrated resort opened by Genting after those in Malaysia and Singapore.
The Singapore integrated resort, Resorts World Sentosa, will be undergoing a S$4.5bil redevelopment over five years, Genting Singapore (GENS) announced on April 3, 2019.
“Fitch believes the plan will have a modest impact on Genting's consolidated leverage, which remains manageable within its current rating.
“This is because Fitch believes Genting has the liquidity, leverage and free cash flow capacity to fund the development, and a track record of timing its capex to broadly match its operating cash flows, which helps the company to manage leverage during expansions,” it said.
Fitch also said it believes that Genting has deleveraging capacity once Resorts World Las Vegas opens by end-2020, and that Genting Singapore will maintain a stable dividend payout during the period of high capex such that cash flows at Genting Overseas Holdings Ltd (GOHL, A-/Stable), will not be impaired. GOHL is Genting's unit, which effectively holds 52.7% of Genting Singapore.
“However, any additional multibillion-dollar investments will likely delay Genting's deleveraging trajectory, and may constrain its ability to deleverage to below one time, the level at which Fitch would consider negative rating action,” it said.
* According to Investopedia a revolver refers to a borrower who carries a balance from month to month, through a revolving credit line. Credit issuers tend to profit handsomely from this model, because the open-ended credit line means revolvers will be paying off their debt obligations for extended periods of time.
Fitch -- Key rating drivers
Ratings Equalised with Parent: RWLV's ratings are equalised with those of Genting due to strong operational and strategic ties, in line with Fitch's Parent and Subsidiary Rating Linkage criteria.
Genting's management exerts a high degree of control over RWLV's operations, funding and financial policy and has extended tangible financial support.
RWLV's success is important for Genting to achieve its strategic objectives of growth and diversification, and negative regulatory action with respect to its licence in Nevada could affect its global operations.
RWLV also shares the brand name with the group's other resorts, highlighting the reputational risk for Genting.
Genting has injected equity of around USD1.2 billion into RWLV to date and will inject another USD700 million to help with construction and debt-service costs.
Genting will sign a keepwell deed, which does not constitute a guarantee of RWLV's obligations, but rather provides an undertaking to maintain RWLV as its subsidiary.
In addition, Genting, through GOHL, will sign a debt service funding agreement, which will cover RWLV's obligations during the construction phase and for two years after project opening, as well as a change order funding agreement, which will fund unforeseen cost increases until completion.
New Entrant in Mature Market: RWLV will be competing for market share against established players, such as Las Vegas Sands Corp (LVS, BBB-/Positive), Wynn Resorts, Caesars Entertainment and MGM Resorts International (BB/Stable), in a mature market.
Genting expects its new, well-located and premium facilities and attractions, which will cater to both gaming and non-gaming visitors, will be preferred over those of competitors.
RWLV will also count on the group's recognised brand, especially among Asians, and 12 million-member loyalty programme to drive growth.
Gaming revenue for the Las Vegas strip has plateaued over the last four years, but non-gaming revenue continued to rise at a CAGR of 5% since 2011. Flat room supply since 2010 has also helped revenue per available room recover to close to the 2007 peak, after weakness in 2009-2010.
RWLV will be the first new property to open in the area in a decade and we expect initial visitation to be strong.
Growth in visitors to Las Vegas should pick up, after moderating since 2017, driven by higher convention-centre capacity and a new football stadium, with support from Las Vegas' reputation as a top leisure destination.
RWLV expects operations and earnings to stabilise within three years of start-up.
We believe management's experience in the Las Vegas market mitigates execution risk, but the ramp-up of operations is likely to be more gradual than RWLV's expectations due to competitive pressure. We have reflected this in our assumptions.
RWLV to Drive Group Leverage: Around 70% of RWLV's USD4 billion budgeted project cost is scheduled to be spent in 2019-2020. Budgeted costs are higher than our assumptions by around USD1 billion due to changes in RWLV's development plan.
RWLV had contracted over USD900 million of the project's USD2.8 billion guaranteed maximum price as of end-February 2019.
Genting has included reasonable contingency in its budget and the risk of cost overrun is mitigated by the locking-in of pricing for key construction materials, such as steel and concrete.
We estimate spending on RWLV to form over 60% of
Genting's total capex of around MYR20 billion during 2019-2020, which is a significant increase from its annual capex and investments of around MYR6 billion in 2018 and MYR4 billion annually over 2014-2017.
We expect that, as a result, Genting's leverage will increase to above 1.0x by 2020, but decline following the opening of RWLV.
The group's record of prudent capital management supports our expectation. However, there is a risk that deleveraging may be delayed by subsidiary GENS's potential investment in Japan, which we have not included in our forecast in light of significant uncertainty.
Healthy Malaysian Operating Performance:
The Malaysian government increased casino duty by 10 percentage points from 2019, which we estimate will cut Genting's EBITDA by around RM700 million annually.
Genting is reviewing its marketing strategy and cost structure to mitigate the impact and we expect rationalisation of rebates and commissions and potential payroll reductions to provide cost benefits of at least RM100 million-RM200 million annually over the next three years.
We also expect revenue growth, particularly from the non-gaming segment, with new facilities under the company's redevelopment masterplan at Resorts World Genting to drive visitor volume.
We see limited downside risk to our cash-flow forecast, despite lawsuits filed by Genting Malaysia, which owns Resorts World Genting, and Twenty-First Century Fox.
This is because non-gaming revenue is a small contributor, at around 15% or less of Genting Malaysia's total revenue.
Furthermore, the lawsuits affect only the outdoor theme park, while the other attractions, including a 400,000-square-foot indoor park, thematic virtual-reality experience and Ripley's Believe It or Not exhibits, have opened.
We also believe our visitor growth estimates of around 10% in 2019 and 5% in 2020 remain reasonable relative to actual 9M18 visitor growth of around 14%.