Fitch Ratings has recently assigned Universal Entertainment Corporation’s proposed US-dollar senior notes maturing in 2029 an expected rating of “B-” with a Recovery Rating of “RR4.” However, the agency has placed the company’s Long-Term Foreign-Currency Issuer Default Rating (IDR) of “B-” on Rating Watch Negative (RWN) due to unresolved issues related to the company’s refinancing plans.
Refinancing Plan and Rating Watch Negative:
Fitch’s decision to place the Long-Term Foreign-Currency Issuer Default Rating (IDR) on Rating Watch Negative stems from the company’s current inability to finalize the new funding arrangements. The issuance of new notes is crucial as it is intended to refinance US$760 million worth of notes that are due in December 2024—a deadline that is rapidly approaching.
Fitch highlighted that while Universal Entertainment is making progress on its refinancing strategy, including securing a US$400 million loan through Okada Manila, a legally binding commitment for the full refinancing plan is still pending. The agency stated, “Fitch will resolve the RWN and affirm the rating at its current level once the refinance plan is completed according to the communicated terms.”
Liquidity and Cash Flow Concerns:
The substantial US$760 million debt maturity raises concerns about Universal’s liquidity and cash flow. Fitch noted that, despite the company’s advanced stages in refinancing efforts, risks persist due to the significant size of the impending debt repayment relative to the company’s financial profile.
Operational Performance and Prospects:
On a more positive note, Fitch expressed confidence in the long-term prospects of Okada Manila, Universal’s integrated resort in the Philippines. The agency cited the country’s healthy economic growth and the ongoing recovery in visitor numbers as supportive factors. While the VIP segment has experienced weaker performance, the non-VIP segment has shown resilience, with consistent earnings reported during the first quarter of 2024.
Additionally, Universal’s pachinko and pachislot business in Japan has demonstrated steady performance, driven by rising sales volumes and the company’s ability to develop in-demand machines that comply with regulations. Fitch anticipates that this segment will maintain stable near-term performance, though potential downside risks could emerge from shifts in player preferences.
Long-Term Challenges and Business Profile:
Despite the operational strengths, Fitch points out long-term challenges for Universal. Over half of the company’s EBITDA is generated from its integrated resort operation in the Philippines, which introduces significant concentration risk due to its reliance on a single casino asset. Moreover, the company faces challenges from a bleak outlook in the domestic pachinko/pachislot market, which could impact its growth prospects.
Fitch observed, “Universal’s business profile is weighed down by bleak long-term growth prospects in the domestic pachinko/pachislot market, highlighting the need for diversification and strategic planning.”
Fitch’s current outlook on Universal Entertainment Corporation is cautious, with the Rating Watch Negative reflecting the uncertainty surrounding the company’s refinancing strategy and the substantial debt maturity. While there are positive aspects in terms of operational performance, particularly with Okada Manila and the pachinko business, the company’s financial stability remains under scrutiny.