Melco Resorts gets a little breathing room to pay lenders

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Melco Resorts & Entertainment has had some difficulties this year because of COVID-19. It already reported that it lost $331 million in the third quarter of the year, and the fourth quarter isn’t shaping up to be much better. When it announced the results, Melco indicated that its activity in Manila and Cyprus were helping to shore up its finances, but Cyprus has since been forced to take a step backward and two Melco casinos there were temporarily closed about two weeks ago. Anticipating further financial restraints on the way, Melco reached out to its lenders for some relief, and have reportedly found what it needed. 

Melco Resorts Finance Limited (MRFL), the wholly-owned Melco subsidiary that is responsible for the company’s City of Dreams Macau and Altira Macau, reported last Friday that it had worked out a deal with lenders to renegotiate some terms associated with credit lines it received earlier this year. At the end of April, the company received a revolving credit facility worth $1.92 billion from a group of financial institutions, which Melco wanted to use to increase its liquidity throughout the ongoing coronavirus pandemic.

MRFL’s own subsidiary, MCO Nominee One Limited, worked with the lenders to reach a new arrangement for the credit, and most of them were amenable to the alternatives – the MRFL announcement didn’t specify who agreed and who didn’t. It explained that it had received confirmation that it could waive several covenants in the agreements, including the need to “meet or exceed the interest cover ratio (ratio of consolidated EBITDA to consolidated net finance charges as such terms are defined in the Facility Agreement) of 2.50 to 1.00,” to “not exceed the senior leverage ratio (ratio of consolidated total debt to consolidated EBITDA as such terms are defined in the Facility Agreement) of 3.50 to 1.00” and to “not exceed the total leverage ratio (ratio of consolidated total debt to consolidated EBITDA as such terms are defined in the Facility Agreement) of 4.50 to 1.00.” All of the conditions apply to the company’s required payment periods, which correspond to December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021.

In order to receive approval for the changes, Melco’s MCO Nominee One subsidiary had to pay a “customary fee” to all of the financial institutions that approved the deal. However, it didn’t specify how much was paid. Melco has been spinning its wheels this year, using a senior notes offering that attracted $500 million in July to pay $352.2 million of the principal amount due on credit facilities it received in 2020. The company went from having net income of $93 million in the third quarter of last year, to a net loss of $302.4 million in the third quarter of this year, and the new credit arrangements are most likely only going to allow it to barely keep treading water until it can emerge from the global pandemic.

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