Mohegan Tribune Gaming Authority's non-investment grade credit rating of "Caa1" reflects "very high leverage, significant debt maturity over the next two years and large annual cash distributions," according to a credit opinion update from Moody's Investors Service Inc.
The company, which trades as Mohegan Gaming, began its out-of-game operations in November at the Mohegan Inspire Entertainment Resort in South Korea for the first time beyond the North American market. On Saturday, Mohegan Inspire launched a foreigner-only casino.
Moody's stated in a Feb. 2 memo that a Mohegan company with Mohegan Inspire assets is an unlimited subsidiary that is not involved in ensuring the debt of the group's limited subsidiary.
"About $1.4 billion of Mohegan's total debt is related to the acquisition and development of unrestricted properties, including the Mohegan Inspire and Niagara resorts in Ontario, Canada," the agency said.
Moody's added that Mohegan Gaming's leverage, as measured by its debt-to-income (EBITDA) before interest, taxation, depreciation and amortization, stood at 7.8 times at the end of fiscal year on September 30, 2023, at 6.3 times and 6.7 times at the end of fiscal years 2022 and 2021, respectively.
"We expect Mohegan's leverage to decline only slightly in the next 12 to 18 months," the agency said.
"New debt issued primarily to finance the development of the Mohegan Inspire led the increase," Moody's added.
The rating agency noted that while the construction of the Mohegan Inspire was completed, "we did not expect the property to contribute significant revenue in 2024 as the opening will be phased in."
Jody Madigan, chief operating officer of Mohegan Gaming, said in mid-December that the Mohegan Inspire will have "positive cash flow" by the end of 2024. He spoke during an earnings call on the group's fiscal fourth-quarter results through Sept. 30.
Moody's observed in its update that "there is a risk to this investment as other well-known gambling places like Macau and Singapore are in Asia."
The agency said Mohegan Gaming's total debt was $3.4 billion on Sept. 30, compared to $2.8 billion and $2.4 billion on Sept. 30, 2022 and Sept. 30, 2021, respectively. "With approximately $2.1 billion due excluding unconditional debt issuance costs and discounts, Mohegan will have to refinance a significant portion of its total debt in the next two years," Moody's said.
Nevertheless, the rating agency said of Mohegan Gaming's "stable" outlook: "After a strong post-pandemic rebound, Mohegan's sales growth will normalize, reflecting expectations that Mohegan will be able to gradually reduce its debt versus EBITDA leverage as newly added properties generate incremental revenue."
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