(The following statement was released by the rating agency)
NEW YORK, May 16 (Fitch) 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
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 premium).
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 31, 2013.
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
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 include:
--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.
Michael Paladino, CFA
Fitch Ratings, Inc., One State Street Plaza, New York, NY 10004
Alex Bumazhny, CFA
Jamie Rizzo, CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email:
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, 2012);
--'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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