Fitch Rates Wynn LV's $500MM Sr Notes 'BB'; Affirms Wynn's IDRs at 'BB'
NEW YORK -- May 16, 2013
Fitch Ratings assigns a 'BB' rating to the Wynn Las Vegas, LLC's (Wynn Las
Vegas) announced issuance of $500 million 4.25% senior notes due 2023. Fitch
also affirms the 'BB' Issue Default Ratings (IDRs) of Wynn Las Vegas, Wynn
Resorts (Macau), S.A. (Wynn Macau), and Wynn Resorts, Ltd (Wynn Resorts;
collectively Wynn). Fitch affirms Wynn Macau's senior secured credit facility
at 'BBB-' and the first mortgage notes (FMNs) at Wynn Las Vegas at 'BB+'.
The Rating Outlook is Stable.
The proceeds of the proposed senior note will be used to fund a cash tender
for $500 million in outstanding 7.875% first mortgage notes due 2017. As a
result, the issuance is leverage neutral and credit positive due to the
maturity extension and interest savings of roughly $16 million (net of
The senior notes will not have meaningful restrictive covenants except for
covenants limiting liens and sale-and-leasebacks to 15% of total assets (based
on GAAP). Beyond the 15% carveout, the senior notes will benefit on a pari
passu basis from any security granted to other creditors. As of March 31,
2013, Fitch calculates that Wynn Las Vegas had $3.6 billion in assets
translating into $546 million lien capacity per the 15% carveout, or about
1.4x Wynn Las Vegas' EBITDA after corporate expense.
Key Rating Drivers
Issue Specific Ratings
The FMNs are currently unsecured (other than the parent equity pledge noted
below), since the collateral was released following the termination of the
Wynn Las Vegas credit facility in September 2012. However, Fitch continues to
maintain the one-notch positive differential on the FMNs relative to the 'BB'
IDR due to the springing lien provision, the collateral value of Wynn Las
Vegas, and the 2x fixed-charge debt incurrence test. These factors limit
potential collateral dilution and additional debt.
The unsecured senior notes also benefit from the FMNs springing lien
provision, providing downside protection in the near-to-medium term. The
senior notes contain a covenant stating that any lien granted to the FMNs will
be shared on a pari passu basis. Therefore, as long the FMNs are outstanding
no liens can be granted without the senior notes benefiting from the lien on a
pari passu basis.
However, Fitch rates the unsecured senior notes equal to the 'BB' IDR based on
Fitch's expectation of the long-term trend that Wynn Las Vegas' capital
structure will continue to become traditionally unsecured. The longest-dated
FMN matures in 2022 but Wynn may look to refinance FMNs before that, given
that the outstanding FMNs are trading at substantial premiums.
Fitch believes there is upside rating momentum over the medium term as the
Cotai project nears completion. In this case, Wynn Las Vegas' ratings could
converge at 'BB+' (and likely limited there until leverage is reduced at Wynn
Las Vegas). In the vast majority of cases in the 'BB' category, Fitch rates
unsecured debt equal to the IDR.
As of March 31, 2013 Fitch calculates Wynn Las Vegas' leverage and interest
coverage using last-12-month EBITDA after corporate expense of $400 million at
7.41x and 1.75x, respectively.
The notes will be secured by a first priority pledge of Wynn Resorts' equity
interests, which is currently the same security supporting the FMNs. Fitch
does not assign much value to the parent equity pledge, since Wynn Las Vegas
creditors already have structural seniority because the debt is issued at the
Issuer Default Ratings
The 'BB' IDR continues to incorporate Wynn's high-quality assets and solid
market position in attractive markets, historically prudent balance sheet
management, solid consolidated financial profile, and rating linkage between
the stronger Macau subsidiary and the weaker Las Vegas subsidiary.
The rating linkage is supported by Wynn's ability and demonstrated willingness
to upstream funds from Wynn Macau to the parent as well as Wynn Las Vegas'
strategic importance to Wynn Macau and the parent.
Fitch expects Wynn's capacity to downstream cash to Wynn Las Vegas to tighten
in the near term as Wynn Macau develops its $3.5 billion-$4 billion Cotai
resort. That said, Fitch projects that Wynn Macau will maintain ample capacity
to pay dividends through the development of the Cotai project with roughly
$1.5 billion in excess cash and $1.55 billion in revolver capacity as of March
Wynn Macau's EBITDA after corporate expense and royalty fees for the LTM
period ending March 31, 2013 was $1.03 billion. Interest expense will
fluctuate between $20 million-$70 million depending on amounts outstanding on
the facility and the prevailing short-term rates. Maintenance capital
expenditures could be around $50 million and tax expense will be minimal,
leaving roughly $900 million in discretionary cash flow that can be split
between Cotai development and paying dividends.
Wynn Resorts Ltd is entitled to 72.3% of Macau dividends. Also the parent
receives approximately $170 million in royalty fees from Macau annually. Uses
of cash at the parent include the payment of Wynn Resorts, Ltd dividends of $1
per quarter per share (about $400 million per year) and roughly $40 million of
interest expense on the promissory note granted to Okada in exchange for
redeeming his shares in Wynn. To maintain these commitments, Wynn Macau needs
to dividend up roughly $400 million per year. This would leave about $500
million in annual Macau free cash flow (FCF) for Cotai development, which is
expected to take about three years.
Through the Cotai development, Fitch expects Wynn Las Vegas to remain FCF
positive. LTM EBITDA after corporate expense is $400 million and run-rate
interest and capital expenditures are roughly $200 million and $50 million,
respectively. Liquidity at Wynn Las Vegas is solid with no maturities until
2020 and about $135 million in cash net of cage cash (estimated by Fitch at
roughly $35 million). Dividends from Wynn Las Vegas to the parent are subject
to restricted payment basket provisions in the FMN indentures.
Fitch calculated consolidated gross leverage using EBITDA with Macau minority
interest income subtracted as of March 31, 2013 at 4.5x. Through the Cotai
development, Fitch expects consolidated gross leverage to remain between 5x-6x
and then normalize to below 4x once Cotai ramps up.
Positive: Future developments that may, individually or collectively, lead to
an upgrade of Wynn's IDR to 'BB+' or the Outlook being revised to Positive
--Consolidated gross leverage moderating to around or below 4x after the Cotai
development starts to ramp up;
--The Okada dispute being settled on favorable terms;
--Additional clarity on potential development opportunities (e.g. Boston,
Negative: Future developments that may, individually or collectively, lead to
a downgrade of Wynn's IDR to 'BB-' or the Outlook being revised to Negative
--Consolidated gross leverage reaching and maintaining above 6x through the
Cotai development cycle or above 5x once the Cotai project ramps up;
--Unfavorable resolution to the Okada dispute (e.g. scenario in which Wynn has
to issue significant amount of additional debt to fund increased compensation
for redeeming Okada's shares);
--Significant debt issued at the parent or Wynn Las Vegas level to support new
At the 'BB' IDR there is cushion for moderate operating declines at the Las
Vegas or Macau level and/or a modest amount of additional debt beyond the
planned Cotai funding for either funding new projects or an increased payment
to Okada. Fitch will consider a 'BB+' IDR as the Cotai development nears
completion and if operating conditions better support Fitch's current view
that leverage will normalize to around 4x by late 2016.
If Fitch upgrade Wynn's IDR to 'BB+', senior unsecured notes will likely
continue to be rated on par with the IDR and the FMN notch will likely be
removed and the FMNs be rated on par with the unsecured notes.
Applicable Criteria and Related Research:
--'Wynn Resorts, Ltd' Full Rating Report (Sept. 12, 2011);
--'2013 Outlook: U.S. Gaming - Return Generation in Full Swing' (Dec. 17,
--'Evaluating Corporate Governance' (Dec. 12, 2012);
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Parent and Subsidiary Rating Linkage: Fitch's Approach to Rating Entities
Within a Corporate Group Structure' (Aug. 8, 2012);
--'Recovery Ratings and Notching Criteria for Non-financial Corporate Issuers'
(Nov. 13, 2012);
--of Recovery Ratings' (June 15, 2012).
Applicable Criteria and Related Research
Parent and Subsidiary Rating Linkage
Corporate Rating Methodology
Evaluating Corporate Governance
2013 Outlook: U.S. Gaming (Return Generation in Full Swing)
Wynn Resorts, Ltd. -- Wynn Las Vegas, LLC and Wynn Resorts (Macau), SA
Country-Specific Treatment of Recovery Ratings
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
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Michael Paladino, CFA, +1 212-908-9113
Fitch Ratings, Inc., One State Street Plaza, New York, NY 10004
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