Wynn Resorts Credit Story Improving, But Still Junk-Rated by Fitch

Posted on: January 30, 2024, 08:46h. 

Last updated on: February 3, 2024, 12:33h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Wynn Resorts (NASDAQ: WYNN) has an improving credit story, but it earned a junk grade of “BB-“ with a “stable” outlook in new coverage by Fitch Ratings.

Wynn debt
Wynn and Encore Las Vegas. Fitch Ratings tagged the operator with a “BB-” credit grade. (Image: Vegas Means Business)

Factors in favor of the casino operator’s credit profile, as highlighted by the ratings agency, include a compelling portfolio of land-based casino assets, ongoing recovery in Macau — the operator’s largest market — and strength in Las Vegas, where it runs its namesake casino hotel and Encore Las Vegas.

This is somewhat offset by the company’s average diversification, although it operates in two of the largest gaming markets in the world, and the capital required to fund current and potential capital projects, which could affect the pace of more meaningful credit improvement,” according to Fitch.

Wynn’s “stable” outlook indicates Fitch’s view that Macau will continue bouncing back from the 2020 through 2022 coronavirus pandemic slump, continuing upside for Wynn’s Las Vegas venues and the gaming company’s solid liquidity.

Macau And Wynn Resorts Credit Profile

In standard operating environments, Macau drives two-thirds or more of Wynn’s earnings before interest, taxes, depreciation, amortization, and depreciation (EBITDA) and revenue, making it one of the most China-dependent companies based in the U.S.

That implies some level of vulnerability to China’s sluggish economy and U.S./China geopolitical tensions. Still, data confirms casino activity is rebounding in Macau, and that room remains to return to pre-pandemic gross gaming revenue (GGR) levels.

Additionally, Wynn’s venues in the special administrative region (SAR) — Wynn Macau and Wynn Palace — are proving adept at adopting a new operating environment less dependent on VIPs and more focused on premium mass bettors.

“Despite the rapid growth in gaming revenues, visitation and airline capacity remain below 2019 levels, and the rebound in those metrics should provide another source of further revenue growth over the near term,” added Fitch. “Results at Wynn Palace has responded strongly, with mass market revenues and property EBITDAR margins for 3Q23 already above 2019 levels.”

Prospects for Wynn Credit Upgrade

At “BB-, “Wynn’s credit rating is merely the third-highest in junk territory, meaning it could be a while before the operator attains investment-grade status. However, there is support for the current credit rating in the form of Wynn’s increasingly bright free cash flow prospects, cash on hand of $2.8 billion, and the company trimming exposure to lagging businesses.

In the U.S., Wynn has “high-quality” assets in Las Vegas and by way of Encore Boston Harbor. At the latter, the operator is forecast to add parking and other fresh amenities starting this year. Those projects, which are expected to be completed in 2026, could further boost the venue’s status as one of the top-performing regional casinos in the U.S. As for shareholder rewards, Fitch sees Wynn focusing more on its dividend and less on share buybacks.

“Wynn has repurchased stock in 2023, but Fitch believes capital allocation to shareholders will focus primarily through the dividend. A nominal amount of share repurchases is estimated over the forecast horizon as opportunistic purchases,” concluded the ratings agency.