When Wynn Al Marjan Island, the first casino resort in the history of the Middle East, opens its doors next September, it could provide a significant boost to operator Wynn Resorts’ (NASDAQ: WYNN) finances while potentially opening the door to credit rating upgrades.
That’s the take of CBRE Credit Research analysts Colin Mansfield and Connor Parks who in a Monday report said the upcoming United Arab Emirates (UAE) casino hotel could aid Wynn in its quest to deleverage its balance sheet, possibly driving lease-adjusted leverage down to 5x. That’d be a turn of more than 1x from current levels.
“After Wynn Al Marjan Island opens, Wynn should enter a prolonged period of lower leverage and robust free cash flow without any meaningful development capex on the horizon,” observe the CBRE Credit Research analysts.
The analysts added that Wynn Al Marjan Island, a project in which the Las Vegas-based gaming company holds a 40% equity stake, could be helpful to Wynn’s credit grades.
Speaking of Wynn Credit Ratings…
Both Fitch Ratings and S&P Global Ratings rate Wynn BB- while Moody’s Investors Service rates the casino giant B1. In all three cases, those are non-investment-grade marks, meaning the operator must compensate investors with higher interest rates when it issues debt. That leads to higher interest expenses over time.
However, the CBRE analysts note that Wynn is possibly a viable candidate for a ratings upgrade at Moody’s because that ratings agency has a 6x leverage qualifier on the company, implying that if Wynn is able to drive its leverage ratio down to that figure, a ratings boost could be in play.
Fitch and S&P Global Ratings also have 5x “leverage triggers” on Wynn, indicating that if the UAE casino is successful when it opens in September 2027, ratings upgrades could be in play for Wynn. At BB- at those shops, Wynn Resorts needs to be upgraded three times to reach BBB-, the lowest investment-grade rating.
Understated Benefits for Wynn with UAE Casino
Due to the war in Iran, the UAE project has been a drag on Wynn stock this year, though some analysts argue that repudiation is unjustified because, to date, the investment community has given the operator almost no credit for the project’s potential.
CBRE highlights other benefits, including the point that in the unlikely event that Wynn Al Marjan Island becomes a credit default risk, lenders can only make claims tied to that venue, not Wynn Resorts at large. As a result, the operator can enjoy the earnings before interest, taxes, depreciation and amortization (EBITDA) benefits of the venue without its debt being factored into the parent company’s leverage total.
“We believe most of the investment community will incorporate the reported cash inflows from Wynn Al Marjan Island into Wynn EBITDA, while not consolidating any portion of the project-level debt given it is non-recourse and the project is essentially majority owned by the government,” add the CBRE analysts.
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