Moody’s Upgrades Melco’s Credit Outlook

Melco Resorts & Entertainment Credit Rating Outlook Upgraded by Moody’s

On November 17, 2023, Moody’s Investors Service upgraded the credit rating outlook of Melco Resorts & Entertainment (NASDAQ: MLCO) from “negative” to “stable.” The positive change in outlook comes after the City of Dreams operator reported strong third-quarter results, with rising gross gaming revenue (GGR) in the Macau special administrative region (SAR) contributing to the improved outlook.

Moody’s analyst Gloria Tsuen noted, “The outlook change to stable from negative reflects our expectation that the Melco group’s financial leverage will improve significantly over the next 12-18 months amid a robust recovery of the gaming market in Macao SAR, China.”

Despite a junk rating of “Ba3,” Moody’s anticipates significant improvement for Lawrence Ho’s gaming company. The operator is expected to witness a notable increase in earnings before interest, taxes, depreciation, and amortization (EBITDA), with forecasts indicating a rise to $900 million this year and a surge to $1.4 billion in 2024.

As of the end of the third quarter, Melco had $1.2 billion in cash on hand, excluding restricted cash. This substantial balance positions the company favorably, allowing it to service its liabilities for the foreseeable future. Moody’s also cited Melco’s high-quality assets and robust long-term growth in Macau as factors supporting the operator’s credit rating.

While Melco’s current credit rating remains three notches below investment-grade territory, Moody’s believes potential upgrades to the higher end of junk are possible with further earnings gains and a decrease in debt-to-EBITDA ratio. However, the agency also warned of potential downgrade if the debt-to-EBITDA ratio returns to above 5.5x-6.0x on a sustained basis, or if the company’s liquidity weakens.

In Macau, Melco operates several well-known properties including City of Dreams, Morpheus, Studio City, and Altira. Overall, the positive outlook from Moody’s reflects the company’s strong financial position and growth potential in the long term.