Wynn Macau announced Friday the sale of USD$600 million in convertible bonds — a transaction that’s open only to professional investors.
The debt bears a coupon of 4.5% and comes due in 2029. In a regulatory filing with the Hong Kong Stock Exchange (HKSE), the Wynn Palace operator notes the bonds can be converted to equity at a price of USD$1.30 per share, a 26.8% premium to where Wynn Macau stock closed on March 2.
Assuming full conversion of the Bonds at the initial Conversion Price of HK$10.24 (USD$1.30) per Share, the Bonds will be convertible into approximately 459,774,985 Shares, representing approximately 8.8% of the total issued share capital of the Company as of the date of this announcement and approximately 8.1% of the enlarged total issued share capital of the Company resulting from the full conversion of the Bonds,” according to the filing.
Convertible debt differs from traditional corporate bonds in that buyers of the former can eventually convert those bonds into shares of common equity of the issuing company. As such, these bonds have more equity-like traits than are found in other corners of the fixed-income market.
Analysts Debate How Wynn Macau Could Use Proceeds
News of the Wynn Macau convertible offering follows parent company Wynn Resorts (NASDAQ: WYNN) last month announcing the sale of USD$600 million worth of traditional corporate debt maturing in 2031.
Recently, gaming companies are heading to the bond market, using proceeds to eliminate obligations with near-term maturities and to potentially gain access to lower interest rates, though the latter isn’t a given due to tightening of monetary policy by some global central banks, including the Federal Reserve.
With convertible issues, a company can use the proceeds to reduce its current debt burden in exchange for a future increase to its equity float. In a note to clients, CBRE analysts John DeCree and Max Marsh point out the Wynn Macau convertible sale could allow the issuer to retire USD $600 million worth of notes coming due next year, extending maturities, and reducing interest expenses in the process.
Wynn Macau’s debt outstanding stood at USD$6.19 billion at the end of 2022.
Some analysts believe Wynn Macau could opt to use proceeds from the convertible transaction to fund spending obligations required under Macau’s newly enacted gaming laws.
“Rather, we think funds could be used to assist with recovery efforts in Macau — which has recently ramped up — and/or to help support capital expenditure related to [Wynn Macau Ltd’s] recently committed investment projects,” noted CreditSights analysts James Goldstein and David Bussey.
Strong Start to 2023 for Wynn Macau
Helped by a steady stream of tourists visiting the gaming hub for Chinese Lunar New Year festivities, Wynn Macau generated positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in the first two months of 2023.
Encouragingly, the operator noted its two Macau venues didn’t experience much of a drop-off following the end of the New Year celebration.
“During the approximately four-week period post the holiday, our mass market table drop recovered to 82 percent of the corresponding 2019 period, and direct VIP turnover was 20 percent above 2019 levels. Similarly, the non-gaming business also remained strong with tenant retail sales 78 percent above the corresponding 2019 period,” according to Wynn Macau’s HKSE filing.
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