Wynn Resorts [WYNN] – Gabelli Funds Research Analyst Adam Trivison, CFA (04.13.20)

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The global gaming industry is reeling from government mandated casino shutdowns due to COVID-19. The shutdowns first struck Macau in early February, right before the all-important Chinese New Year. Since reopening February 20th, demand has remained depressed due to visa and travel restrictions between Macau, Hong Kong and Mainland China.
In the US, all 989 US commercial and tribal casinos are closed, most by state mandate, with an uncertain timeline for reopening.

Gaming companies reacted quickly to stem operating losses with many furloughing or laying-off employees and announcing pay cuts for executives.

Liquidity has become a primary concern with most companies drawing down their revolving credit facilities, cutting capex budgets, and working with creditors to temporarily waive covenants. A few gaming companies have successfully accessed debt markets as well.
Lastly, management teams are working to assess the potential benefits of the recently passed CARES Act, including Payroll Tax deductions and deferrals.

So, where does Wynn Resorts stand?

Both of the company’s US properties have been closed since mid-March, and will remain closed by state mandate until early May, although those mandates could be extended.

In Macau, both Wynn properties are open, but visitation remains quite low due to visa and travel restrictions. Management has said that current revenue levels are not enough to offset its operating costs – in Macau furloughs and lay-offs are not an option.

In the US, Wynn management has committed to paying its US employees full wages and healthcare until May fifteenth – breaking rank with many in the industry.

The company has said that the costs associated the decision comprise a sizable portion of the $4.3 million dollar per day cash burn while closed. Management’s thinking is that this move is necessary in order to maintain its industry-high service standards.

Like others, the company is shoring up liquidity by cutting all non-essential capex and has drawn its revolvers in both the US and Macau. Importantly, Wynn Macau decided not to issue a final dividend – of which 72% would flow to the US holdco – but is reserving the right to declare a special dividend should it become necessary.

Notably, the company was able – on April 7th – to access credit markets in a constructive fashion with its US subsidiary issuing $600 million of unsecured notes at a seven and three-quarters yield. Note that the oversubscribed offering was upsized from $350 million.

What we’ve done here is take the information disclosed as part of the debt offering and compiled two liquidity analyses. These exercises assume: Wynn’s US properties continue to pay employees full wages while generating no revenue, Wynn Resort’s one dollar per share quarterly dividend is maintained, and capex is cut to $80 million.
The first exercise assumes that Wynn Macau does not distribute cash via a dividend. In this scenario, Wynn’s US operations have over 10 months of liquidity – starting from April first, hence until February 2021.

The second scenario assumes that Wynn Macau distributes the one billion of cash held at its Hong Kong listco in the form of a special dividend with 72% going to Wynn Resorts. Under this assumption, Wynn’s US operations have nearly fifteen months of liquidity – again starting from April first.

To read Adam’s most recent whitepaper on the gaming industry, go the www.gabelli.com/funds/insights or copy the link below

https://www.gabelli.com/funds/insights/39c2df3e-71b1-43e0-919e-4aef6aff2057

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