Wynn Resorts Finance, LLC — Moody’s downgrades Wynn Resorts Finance’s CFR to B1; outlook remains negative

Rating Action: Moody’s downgrades Wynn Resorts Finance’s CFR to B1; outlook remains negativeGlobal Credit Research – 16 Dec 2021New York, December 16, 2021 — Moody’s Investors Service (« Moody’s ») downgraded Wynn Resorts Finance, LLC’s (« WRF » or « Wynn ») Corporate Family Rating (« CFR ») to B1 from Ba3, Probability of Default Rating to B1-PD from Ba3-PD, and senior unsecured notes to B2 from B1. WRF’s Ba1 rated senior secured revolver and term loan were affirmed. Additionally, Wynn Macau, Limited’s (« WML ») senior unsecured notes were downgraded to B2 from B1. The senior unsecured notes at Wynn Las Vegas, LLC were downgraded to B2 from B1. The company’s speculative-grade liquidity rating of SGL-2 is unchanged. The outlook remains negative.The rating downgrade reflects Moody’s expectation that Wynn’s credit metrics will remain weaker than pre-pandemic levels, because of the slow recovery in earnings amid lingering travel restrictions affecting Wynn’s Macau operations given the still heightened social risk due to the negative effect the coronavirus continues to have on visitation and travel in the region. Moody’s expects Wynn’s consolidated earnings to remain meaningfully below pre-pandemic levels at least through 2022, because the recovery in gross gaming revenue (GGR) in Macao SAR, China will likely be gradual and bumpy. This expectation factors in the likely pattern of travel resumption and temporary suspensions, mainland China’s control over visa issuances, and the uncertain lifting of quarantine requirements for travelers from Hong Kong SAR, China. Improved operating performance at Wynn’s Las Vegas properties and Encore Boston Harbor is not enough to fully offset the lingering weakness in Macau. As a result, Moody’s expects leverage will remain elevated until a recovery is more fully realized in 2023.Moody’s affirmed WRF’s Ba1 secured debt ratings because the mix of secured debt remains modest and the strong asset coverage would lead to a strong recovery in the event of default.The following ratings/assessments are affected by today’s action:Ratings Downgraded:..Issuer: Wynn Las Vegas, LLC….Senior Unsecured Regular Bond/Debenture, Downgraded to B2 (LGD4) from B1 (LGD4)..Issuer: Wynn Macau, Limited….Senior Unsecured Regular Bond/Debenture, Downgraded to B2 (LGD4) from B1 (LGD4)..Issuer: Wynn Resorts Finance, LLC…. Corporate Family Rating, Downgraded to B1 from Ba3…. Probability of Default Rating, Downgraded to B1-PD from Ba3-PD….Senior Unsecured Regular Bond/Debenture, Downgraded to B2 (LGD4) from B1 (LGD4)Ratings Affirmed:..Issuer: Wynn Resorts Finance, LLC….Senior Secured Bank Credit Facility, Affirmed Ba1 (LGD1) from Ba1 (LGD2)Outlook Actions:..Issuer: Wynn Las Vegas, LLC….Outlook, Remains Negative..Issuer: Wynn Macau, Limited….Outlook, Remains Negative..Issuer: Wynn Resorts Finance, LLC….Outlook, Remains NegativeRATINGS RATIONALEWynn’s B1 Corporate Family Rating reflects the lingering earnings weakness from efforts to contain the coronavirus and the slow recovery in Macau visitation and revenue. The rating is supported by the quality, popularity, and favorable reputation of the company’s resort properties — a factor that continues to distinguish Wynn from most other gaming operators — along with the company’s well-established and very successful track record of building large, high quality destination resorts. Wynn’s good liquidity and relatively low cost of debt capital also support the ratings. The B1 Corporate Family Rating also incorporates Moody’s expectation that Wynn will successfully renew its Macau concession agreement on terms that will not materially impair Wynn’s credit quality. Key credit concerns include Wynn’s limited diversification despite being one of the largest U.S. gaming operators in terms of revenue and exposure to reductions in cyclical discretionary consumer and business spending. Wynn’s revenue and cash flow will remain heavily concentrated in the Macau gaming market. Moody’s also expects that Wynn will be presented with and pursue other large, high profile, integrated resort development opportunities around the world. As a result, there will likely be periods where the company’s leverage increases due to partially debt-financed, future development projects.The coronavirus outbreak and the government measures put in place to contain it continue to disrupt economies and credit markets across sectors and regions. Although an economic recovery is underway, the recovery is tenuous, and continuation will be closely tied to containment of the virus. As a result, a degree of uncertainty around our forecasts remains. Moody’s regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The gaming sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, Wynn remains vulnerable to a renewed spread of the outbreak. Wynn also remains exposed to discretionary consumer spending that leaves it vulnerable to shifts in market sentiment in these unprecedented operating conditions.Additional social risks for gaming companies include high taxes and operating restrictions imposed by governments to mitigate the effects of problem gambling, and evolving consumer preferences related to entertainment choices and population demographics that may drive a change in demand away from traditional casino-style gaming. Younger generations may not spend as much time playing casino-style games (particularly slot machines) as previous generations. Data security and customer privacy risk is elevated given the large amount of data collected on customer behavior. In the event of data breaches, the company could face higher operational costs to secure processes and limit reputational damage.Wynn’s financial policies include use of debt for development projections that contributes to high leverage. The company has a history of returning significant amounts of capital to shareholders through cash dividends, but Wynn is willing to change the amount of cash dividends paid, if necessary, to match the earnings profile. To that end, Wynn has suspended the dividend since early 2020. The company also has a long and consistent history of maintaining a large amount of unrestricted cash on its balance sheet to support investment and liquidity.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe negative outlook reflects the uncertain duration and recovery from the coronavirus-related earnings and cash flow pressure, which is contributing to higher debt and an extended recovery in the company’s very high leverage. Wynn remains vulnerable to travel disruptions and unfavorable sudden shifts in discretionary consumer spending and the uncertainty regarding the pace at which consumer spending at the company’s properties will recover.Ratings could be downgraded if liquidity deteriorates or if Moody’s anticipates Wynn’s earnings declines to be deeper or more prolonged because of actions to contain the spread of the coronavirus or reductions in discretionary consumer spending. An inability to reduce debt-to-EBITDA leverage to 7x could also lead to a downgrade.A ratings upgrade is unlikely given the weak operating environment in Macau. However, an upgrade would require casinos to remain open and ramp up closer to normal utilization, a restoration of sufficient earnings to generate meaningful positive free cash flow before discretionary development spending, and the continued ramp-up of Encore Boston Harbor. Wynn would also need to maintain debt/EBITDA on a Moody’s adjusted basis below 6.0x.The principal methodology used in these ratings was Gaming published in June 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1276316. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Wynn Resorts Finance, LLC is an indirect wholly-owned subsidiary of publicly-traded Wynn Resorts, Limited, and holds all of Wynn Resorts, Limited’s ownership interests in Wynn Las Vegas, LLC, which owns and operates the Wynn Las Vegas integrated resort in Las Vegas, Nevada (excluding certain leased retail space that is owned by Wynn Resorts directly), Wynn Asia, and Wynn MA, LLC, which owns and operates Encore Boston Harbor. The company owns 72% of Wynn Macau, Limited. Consolidated revenue for the last twelve-month period ended September 30, 2021 was approximately $3.4 billion.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. 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Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Adam McLaren Vice President – Senior Analyst Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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