Ratings agency Fitch has assigned Universal Entertainment Corporation’s proposed US-dollar senior notes maturing in 2029 an expected rating of “B-” with a Recovery Rating of “RR4” but has placed the company’s Long-Term Foreign-Currency Issuer Default Rating of “B-” on Rating Watch Negative (RWN) because it has not yet signed off on the raising of new funds.
In a note, Fitch observed that the issuance of new notes will primarily be used to refinance US$760 million notes due December 2024 – a date it says is “drawing closer”.
“While the company is in advanced stages of executing a refinancing plan, legally binding commitments to refinance are not in place,” the agency said. “Fitch will resolve the RWN, and affirm the rating at its current level, once the refinance plan is completed at the terms communicated.”
Of concern to Fitch is the fact that the looming US$760 million debt maturity is substantial relative to Universal’s liquidity and cash flow profile, stating that “risks remain” despite the company having demonstrated that it is advanced stages of refinancing, including locking in a US$400 million loan through the operating entity of its Philippines integrated resort, Okada Manila.
On an operational level, Fitch said it remains confident in the long-term prospects of Okada Manila, “underpinned by the Philippines’ healthy economic growth and continued recovery in visitations.” Despite weaker performance in the VIP segment, non-VIP has remained resilient and recorded consistent earnings during 1Q24, the agency observed.
Fitch also points to consistent earnings from Universal’s pachinko and pachislot business in Japan, where sales volume has continued to rise in recent years due in part to emerging replacement demand and its ability to develop machines that are in demand and comply with regulations in a timely manner.
“We forecast near-term performance of the segment to remain steady, though downside could arise from players’ changing preferences,” Fitch said.
However, the agency also noted that Universal could suffer long-term from its limited operating scale.
“Over half of Universal’s EBITDA is from its IR operation, comprising a single casino asset in the Philippines, which presents heightened concentration risk,” it said. “Furthermore, Universal’s business profile is weighed down by bleak long-term growth prospects in the domestic pachinko/pachislot market.”
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