We view Wynn Macau as “High Risk” on the LARA scale. The company has a good operating track record in the Macau gaming market, supported by two high-quality assets (Wynn Macau and Wynn Palace). Conversely, our view also takes into account the company’s geographical concentration and exposure to Chinese regulatory changes. Moreover, we consider the risks associated with the ownership by Wynn Resorts, given Wynn Macau’s history of paying large dividends to the parent company. Over the medium to long term, the Macau gaming industry should benefit from the rising affluence and discretionary income of China’s growing middle class. That said, the industry is facing challenges from the impact of the COVID-19 pandemic on tourism and consumers’ discretionary spending.
Our fundamental Credit Bias on Wynn Macau is “Negative”, on account of its severely weakened leverage and the uncertain recovery trajectory. In addition, we are concerned that the company might resume dividend payments too quickly (before being able to generate and sustain positive FCF), which would be highly credit negative. Still, the company has adequate liquidity for now, with no debt maturities until October 2024. We also anticipate that Wynn Macau will successfully renew its concession agreement in December 2022.
Controversies are “Immaterial”. In February 2018, founder Steve Wynn resigned as Chairman and CEO of Wynn Resorts, after he was accused of sexual misconduct. Mr Wynn sold his 11.8% stake in the company in March 2018. The Board also made major changes and removed directors with past links to Mr Wynn. In our view, Wynn Resorts acted promptly to limit reputational damage. We also deem Wynn Resorts’ corporate governance to have improved, as it is now run by professional managers and no longer has direct ties to its founder. Mr Wynn’s ex-wife, Elaine Wynn, is currently the largest shareholder of Wynn Resorts (8.4% stake).
Some ESG-compliant funds may be prohibited from investing in Wynn Macau, due to the nature of its core business (casinos). That said, Macau’s gaming industry is established, transparent and highly regulated. We believe the curtailment of junket activities would help to further raise operators’ transparency. Moreover, the authorities are seeking to reduce the city’s reliance on gaming and promote leisure tourism in the medium term. These factors should mitigate ESG-related risks. Overall, the ESG Impact on Credit is “Neutral”.
