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SkyCity on S&P negative credit watch

Friday 3rd April 2020

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Investors have also down rated the SkyCIty bond yields causing in it to spike to 9% due to perceived negative cashflow risk 

SkyCity’s Covid-19 government-mandated casino closures has resulted in its Bonds being de-rated and the group has been placed on CreditWatch negative by S&P.

While its Casinos are closed its hotels remain open temporarily to accommodate guests.

SkyCity has withdrawn its guidance for the year ending June 30.

Due to uncertainty over the length of the lockdown and its impact on cashflows investors have de-rated its bond yields causing a spike in to 9%, with a coupon rate of 4.65. Investors are also concerned about what support the Government will be able to give the group.

SkyCity like many other businesses with large fixed overheads costs will be faced with significant adverse cashflow pressures. Concern is also developing amongst investors about the rate of earnings recovery due to uncertainty about the extent and length of the casino closures.

SkyCity has been placed on a negative CreditWatch by S&P Global Ratings due to its cashflow issues created by the closures of its casinos. According to S&P, SkyCity’s Auckland Casino currently contributes more than 70% of group earnings representing significant earnings dependency from one source. 

S&P reported that an extended closure of group casinos could compromise the group’s ability to keep adjusted debt to ebitda below 3.0x. It expects the debt - to - ebitda to materially exceed 3.0x over the next one or two years.

All the above could make it difficult for the group to maintain its BBB – rating. 

S&P commented “In our view, the group has a solid track record of prudent balance sheet management and ratings stability. The company is publicly committed to maintaining the BBB- rating, which we believe implies that it will take all reasonable actions to protect the interests of creditors.”

S&P said SkyCity could recalibrate shareholder returns, sell non-core assets as well as making near-term operating and capital expenditure decisions to support its balance sheet.

Based on an article by the NBR reporter Andrew Bevin 

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