Posted: Jun 1, 2021 at 8:05 am.
Last update on: June 1, 2021, 8:05 am.
The credit rating of Japanese game company Universal Entertainment Corp. (UEC) was downgraded to “CCC +” from “B” by Fitch Ratings, the research firm expressing concerns over the operator’s plans to list its integrated resort business at Okada Manila on a US stock exchange.
Corporate bonds rated in Territory “C” are considered highly speculative and vulnerable to default. This is particularly relevant when it comes to Universal, as device maker pachinko has $ 118 million in senior secured notes maturing in December and Fitch fears the company does not have the cash to repay that debt to less than free cash flow (FCF) improves dramatically. in the second half or additional funding is raised. “
We also believe that UEC’s business profile is no longer commensurate with category ‘B’ given the increased volatility of its earnings and cash flow, amplified by the pandemic both in the casino industry and domestic operations, ”the rating agency said.
Okada Manila is the largest integrated complex in the entertainment city of Manila – an area where arcades have only recently resumed operations following the coronavirus pandemic and are doing so at limited capacity. At this time, Okada only allows members of its loyalty program and dedicated players to enter the casino.
Okada Manila SPAC Deal not a solution
Earlier this year, Universal said it was looking for a U.S.-based Special Purpose Acquisition Company (SPAC) to partner with to bring Okada Manila’s business to a U.S. stock exchange, such as the Nasdaq. or the New York Stock Exchange (NYSE).
Such a transaction could help resolve the parent company’s liquidity issues, but it ignores a possible increase in COVID-19 cases in the Philippines, which would result in another site shutdown. The plan factor is that blank check transactions have recently fallen out of favor as investors question the poor post-trade performance of target companies.
“UEC believes it has several options to consolidate its liquidity, such as a potential listing of its Philippines-based casino business or refinancing. Considerable uncertainty exists over these options as the UEC is vulnerable to pandemic-related disruptions, ”said Fitch.
Universal announced in February that it was considering merging its integrated resort business with a US-based PSPC and said in late March that it was considering multiple offers, but the company has been silent on that front for more than two years. month.
Hard Comps for Universal
Based on its profitability and regional exposure, Okada Manila is somewhat relative to Australian Crown Resorts and Las Vegas Sands (NYSE: LVS), but these operators are rated “BBB” and “BBB-” respectively.
“Crown and Sands also operates under more stable regulatory regimes than UEC,” adds Fitch. “The Japanese firm’s execution and operational risks are also significantly higher than those of Crown and other peers, as UEC has yet to establish its position in the junket and high-roller segments.
Analysts expect operators exposed in the Philippines to see only modest recoveries later this year before returning to pre-pandemic levels in 2023.