New Cotai, Key Investor in Macau’s Studio City, Files for US Bankruptcy Protection

Posted on: May 4, 2019, 04:53h. 

Last updated on: May 4, 2019, 04:53h.

Ed Silverstein @casinoorgedsilv Read More
Expertise: Legal, Tribal Gaming.

Executives at Macau’s Studio City Resort Casino are confident in the future of the venue and its planned expansion despite news that one of its top investors has filed for bankruptcy protection.

New Cotai, a minority owner of Macau Studio City, has filed for bankruptcy protection. (Image: Booking.com)

New Cotai Holdings has asked the Bankruptcy Court for the Southern District of New York for Chapter 11 bankruptcy protection from 20 creditors, according to GGRAsia.

New Cotai and three affiliated companies have liabilities of between $500 million and $1 billion. Believed to be at issue is $856 million in debts. Unsecured notes also came due last Wednesday, according to Bloomberg News.

New Cotai and its affiliates blame the financial situation on multiple reasons, such as unexpected declines in the Macau gaming market; $300 million more in construction costs;  lower gaming table allocation for Studio City than anticipated by the Macau government; and Studio City postponing the completion of new construction from last July to July 2021, according to Law360.

On Thursday, a bankruptcy court judge will hold a hearing on the company’s request.

Company Responds

Mello Resorts & Entertainment Limited remains the majority shareholder of Studio City with an estimated 53 percent of ownership.

In a statement released this week, Studio City said it “does not anticipate that the bankruptcy of New Cotai will have any material impact on the business or operations of Studio City or the funding or the timing of the development and construction of Studio City’s Phase II expansion.” The expansion is expected to cost about $1.4 billion and will include two hotel towers, as well as gaming and non-gaming areas.

In response to the news, brokerage Sanford C. Bernstein said the bankruptcy of New Cotai Holdings “has been expected.” The firm also predicted the possibility of Melco buying out some of the minority stake in Macau Studio City “is not very likely in the near term.”

Currently, New Cotai Holdings owns 23 percent in Studio City International Holdings. Prior to last November’s initial public offering, it owned 40 percent of Studio City.

In addition to New Cotai Holdings, affiliates New Cotai Ventures, New Cotai and New Cotai Capital Corp also filed for bankruptcy protection.

New Cotai is backed by Silver Point Capital and Oaktree Capital Management, which are financial firms.

News about New Cotai comes as gross gaming revenue (GGR) in Macau, overall, in 2019 is flat. But the number of visitors is increasing.

Some 35.8 million people visited the gaming enclave last year. That represents a 10 percent gain on 2017 amounts.

March’s GGR totaled $3.2 billion in Macau, a slight loss of 0.4 percent.

VIP Gaming

There has been less focus on VIP gaming revenue in Macau, despite that it formerly accounted for the majority of GGR in Macau. Last year, VIP gaming revenue represented less than half of all casino win.

Analysts from the International Monetary Fund say the Macau government should consider easing congestion amid growing tourism “to accommodate the higher number of tourists under a mass market and non-gaming model.”

Still, gambling is the lifeline of Macau. Gaming taxes account for around 80 percent of the enclave government’s total revenue.

But the 2018 opening of the Hong Kong to Macau bridge, a 34-mile span across the Pearl River Delta, is helping to fuel visitation. The expanse cuts the time for auto travel between the two enclaves to under an hour’s drive.

Looking ahead, licenses for SJM Holdings and MGM Resorts are set to expire in 2020, and the four other operators — Sands, Wynn, Galaxy Entertainment, Melco — will see their concessions expire in 2022.