New Cotai Bonds in Distress as S&P Cuts View on Macau Casino

  • Payment-in-kind notes indicated at 42.5 cents Aug. 18: SC Lowy
  • Bonds issued by units of Silver Point Capital, Oaktree Capital

Bonds issued by U.S. partners in Macau’s casino project Studio City have dropped to distressed levels after gaming revenue in the city entered a third year of declines and S&P Global Ratings lowered its outlook on the project.

The 10.625 percent notes co-issued by New Cotai LLC and New Cotai Capital Corp., units of U.S. hedge funds Silver Point Capital LP and Oaktree Capital Group LLC, were indicated at 42.5 cents on the dollar on Aug. 18, according to prices from independent fixed-income firm SC Lowy. The 2019 payment-in-kind notes, which pay interest in additional bonds rather than cash, last traded at 46 cents on Aug. 10 to yield 44.4 percent, versus 64 cents on June 15 and 73 cents on March 3, according to Trace data.

The $3.2 billion Studio City is the latest effort in Macau to appeal to families and diversify away from gambling, after Chinese President Xi Jinping’s anti-graft drive and a weakening economy stifled the casino business. It features a Batman ride, magic show and hotels and restaurants. But so far such new facilities in Macau have struggled to attract new customers. Visitors to the city fell 2.6 percent to 30.7 million in 2015 and were unchanged in the first half of this year.

Silver Point, Oaktree

Silver Point Capital and Oaktree Capital own a 40 percent stake in Studio City through their funds, with Hong Kong-based Melco Crown Entertainment Ltd. holding the remaining 60 percent.

Representatives for Oaktree and Silver Point in the U.S. declined to comment. There was no immediate reply to e-mailed questions to New Cotai.

Melco Chairman Lawrence Ho this month said the development of a new Cotai shuttle service helped to increase visitation to Studio City. New infrastructure in the Cotai region of Macau, where the casino is located, is expected to attract more visitors, he said on the company’s second-quarter earnings call. He said construction work on the neighboring Parisian Hotel and a new light rail station in the area had hampered visitation.

S&P cut the rating outlook on Studio City’s separate 2020 notes to negative on Aug. 15 on slower revenue and refinancing risk. The credit assessor said it could breach its HK$10.86 billion ($1.4 billion) senior credit facilities.

The yield on Studio City’s 8.5 percent 2020 notes has climbed 100 basis points this month to 8.4 percent, Bloomberg-compiled prices show.

“Studio City is within an entirely separate credit group and its debt is non-recourse to Melco,” Melco said in an e-mail statement on Aug. 17. “Investors should not assume that Melco will provide any financial support to Studio City or that it would step in for Studio City.”

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