GGRAsia – Nobu deal credit negative for Crown: Moody’s

Nobu deal credit negative for Crown: Moody’s

Oct 30, 2015 Newsdesk Latest News, Top of the deck, World

Moody’s Investor Service Inc says the acquisition by Crown Resorts Ltd of a stake in international restaurant and hotel company Nobu Hospitality LLC is “credit negative”.

The credit rating agency however said the deal would have “no immediate impact” on the rating of Crown Resorts. The Australian gaming operator has a Moody’s issuer rating of Baa2, with a stable outlook.

Crown Resorts on Thursday announced it was acquiring a 20-percent interest in Nobu for US$100 million.

“[The] investment in Nobu is credit negative as it represents a new financial commitment at a time that Crown Resorts has an extensive pipeline of projects [in Australia and Las Vegas] to be undertaken over the next four years,” said Maurice O’Connell, a Moody’s vice president and senior credit officer, quoted in a Thursday press release.

He added: “The substantial project pipeline coincides with lower expectations for increasing dividends from Crown Resorts’ investment in Melco Crown Entertainment Ltd”.

Crown Resorts controls one third of Melco Crown. The latter firm operates three casino properties in Macau and one in the Philippine capital, Manila.

Moody’s stated that the outlook for a “strong and sustainable rise in dividend income” from Melco Crown was negatively impacted by the sharp downturn in Macau’s gaming revenue. September was the 16th straight month of market wide gross gaming revenue retreat in Macau measured year-on-year and the lowest monthly tally in five years.

For the fiscal year ended June 30, Crown Resorts’ leverage based on adjusted debt/EBITDA (earnings before interest, taxation, depreciation and amortisation) was around 2.5 times, Moody’s stated. “Such leverage remains within the 3.0 times tolerance level set for the rating, but represents a significant reduction in headroom and increases the risk of downward rating pressure in light of a number of major projects that Crown Resorts is undertaking,” the rating agency added.

The remaining 80 percent of Nobu “will continue to be owned by the existing owners,” Crown Resorts said in a Thursday filing to the Australian Securities Exchange. The existing investors include Japanese chef Nobu Matsuhisa – who gives his name to the brand –, Hollywood producer Meir Teper and actor Robert De Niro.

As part of the Nobu stake acquisition, Crown Resorts will nominate James Packer (pictured) to join the Nobu board as one of four directors. Mr Packer, until recently the chairman of Crown Resorts, remains the casino operator’s largest shareholder.

“I am extremely happy to say that the proposed Crown Sydney Hotel Resort will have an iconic Nobu restaurant in future, just like the restaurants already operating at our resorts in Perth and Melbourne,” Mr Packer was quoted saying in a press release announcing the Nobu deal.

He added: “Crown Resorts will also look to evaluate the financial returns on remodelling our Crown Promenade hotels in Melbourne and Perth into Nobu hotels.”

The Nobu name is best known for its 30-plus restaurants across the world. Today the brand – popularised by celebrity backers and patrons – has two hotels, at Caesars Palace in Las Vegas and City of Dreams Manila, and at least eight more in the pipeline.