Wynn Resorts Jolted by Lowered Credit Rating and Rumors of Takeover

Encore Boston Harbor casino. (Photo by Jim Mahoney)

Company is Sound but Things are Changing

By Josh Resnek

Last week, Encore reported significantly lower gaming revenues for November.

That news was preceded by several weeks with the announcement that Wynn Resorts CEO Matt Maddox is resigning his $25 million a year position to seek other interests.

Now comes the lowering of Wynn’s credit rating by a major credit company.

The lowering of the company’s credit rating is apparently connected to income difficulties Wynn Resorts is having at its main generating revenue machine, its sprawling and luxurious casino and hotel in Macau – about 35 miles from Hong Kong.

“Moody’s Investors downgraded the firm’s credit rating citing ongoing weakness in Macau,” according to Casino.org.

The Macau investment is worth about 75% of Wynn Resorts annual combined revenues. The rating agency took the credit grade on the gaming company’s finance unit to B1 from Ba3, and the probability of default to B1-PD from Ba3- PD. Moody’s also lowered the rating on Wynn Macau’s and the US-based parent company’s senior notes to B2 from B1.

The rating downgrade reflects Moody’s expectation that Wynn’s credit metrics will remain weaker than pre-pandemic levels, because of the slow recovery in earnings amid lingering travel restrictions affecting Wynn’s Macau operations given the still heightened social risk due to the negative effect the coronavirus continues to have on visitation and travel in the region,” said the research firm.

In a standard operating environment, Macau drives two-thirds of earnings before interest, taxes, depreciation and amortization (EBIT- DA) for Wynn. That’s fine when things are normal in Macau.

But that’s far from the case today, as coronavirus-related travel restrictions, the specter of a tighter regulatory environment, and more recently, the likely end of the VIP jun- ket industry weigh on concessionaires in the world’s largest casino center. Since the onset of the pandemic and to the present, the mobs of wealthy Chinese traveling to the Macau casino and hotel have declined dramatically – cutting revenues and earnings.

The failure of Macau to come back has been exacerbated by the annual gaming licensing renewal process run by the Chinese government. Investors in casino gaming grow very touchy when licensing can present a problem. The deteriorating and volatile political situation in Hong Kong and the net result of the pandemic have seriously reduced revenues and place in question the licensing process. Even if the license process goes smoothly, as Wynn executives have said they would, there is the question about when the convention business and travel will return and when will the legions of high rollers will again crowd around the Macau casino’s famous table games.

Casino analysts have pointed to Maddox’s coming “retirement” from Wynn, and lower revenue expectations in Macau as a key moment in the company’s evolution.

Add to this that Maddox has been cashing in some of his stock.

He sold 20,000 shares (he holds about 400,000 shares) last week. He sold an additional $15,000 shares in November. He sold 56,000 shares last January.

Wynn Resorts stock closed at about $86 per share Tuesday.

At that price, Maddox’s stock is worth approximately $35 million.

Effective Feb. 1, Craig Billings, Wynn’s president and chief financial officer and the chief executive officer of Wynn Interactive, will replace Maddox in the company’s top role. Maddox has been with the company for two decades, and is viewed by Wall Street and the in- vestment community as a steadying influence. He took the reins of the gaming giant in 2018 when Steve Wynn — his mentor — was forced out amid a spate of sexual misconduct allegations. “It’s believed that Maddox, 46, wants to explore options outside the gaming industry, and there’s some speculation he’s mulling politics as a next act,” according to Todd Shriber, writing for Casino. org. “Analysts believe the company could announce stock-jolting transactions or perhaps become a takeover target for a private equity company,” Shriber predicted.

Looking to potential 2022 catalysts, there’s speculation among analysts that amid executive change at Wynn, the company could mull selling its Macau properties or engage in industry consolidation as a buyer. Some market observers speculate the company could be sold outright to a cash-rich private equity suitor, Casino.org reported.

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