On Tuesday, Studio City Finance Limited, the operating entity behind Melco Resorts & Entertainment’s Studio City integrated resort in Macau, completed a notable financial move by repurchasing $37,782,000 of its outstanding 6.000% Senior Notes due in 2025. This repurchase represents 7.6% of the original aggregate principal amount of $500 million at the time of the notes’ initial listing. The company has immediately canceled all of the repurchased notes, marking a significant step in its financial strategy.
Key Financial Impacts of the Repurchase
According to CBRE Credit Research analyst Colin Mansfield, this repurchase reduces the total outstanding amount of the 6.000% Senior Notes due 2025 to $260 million. More importantly, it has lowered Studio City’s leverage ratio by 0.2x from 9.3x (as of June 30, 2024) to 9.1x. This reduction in leverage reflects the company’s ongoing efforts to strengthen its financial position and manage its debt more effectively.
Refinancing and Future Outlook
During its recent Q2 2024 earnings call, Melco Resorts, the parent company of Studio City, highlighted its active pursuit of refinancing options for the senior notes before their maturity in July 2025. This move aligns with the broader strategy to optimize the company’s debt structure and enhance financial stability.
Colin Mansfield remains optimistic about Studio City’s future despite a quarterly increase in operating expenses during Q2, which were attributed to rising costs related to residencies, wages, and full-time equivalent (FTE) employees. Mansfield noted, “We remain satisfied with the property’s recovery and overall credit profile.”
Operational Performance and Recovery
Mansfield’s report highlights several positive aspects of Studio City’s operational performance. The resort’s more affordable retail footprint has successfully attracted foot traffic, especially when compared to Melco’s other luxury offerings amid the challenging Chinese macroeconomic environment. Additionally, the mass table count at Studio City has increased quarter-on-quarter, with an average daily win of $13,300, although this comes with a slightly higher hold percentage.
Notably, this is the fourth consecutive quarter where the mass table win per day has surpassed $10,000 and the third consecutive quarter where it has exceeded productivity levels seen in 2019. These figures indicate a robust recovery trajectory for Studio City’s gaming operations.
Broader Financial Context for Melco Resorts
In a broader context, CBRE calculates that Melco Resorts’ group-wide leverage currently stands at 7.3x. The company has consistently emphasized debt reduction as a primary focus in its recent earnings calls. This strategic focus is underscored by Melco’s recent decision to repurchase approximately $44.5 million of its own shares on the open market. The company views this share repurchase as a demonstration of confidence in its long-term strategy and growth prospects.
Studio City Finance Limited’s recent financial maneuvers, including the repurchase and cancellation of senior notes and the strategic focus on debt reduction, signal a proactive approach to managing its financial health and positioning itself for future growth. The positive operational performance and strategic refinancing plans further underscore the company’s commitment to strengthening its credit profile and achieving sustainable financial stability.