Macau’s Studio City Will Default on Debt, Warns Analyst

Studio City Macau, Lawrence Ho and James Packer’s $4.5 billion integrated casino resort on the Cotai Strip is in trouble and could default on the $1.41 billion loan used to complete the construction of the hotel.

That’s the word from rating agency Standard and Poor’s Financial Services, which this week issued a negative outlook for the resort’s bonds, off the back of a 42.5 percent slide in their value.

Macau’s first ever TV and movie-themed resort opened in October 2015, with Packer’s girlfriend Mariah Carey headlining the opening night, as the likes of Robert De Nero and Leonardo DiCaprio mingled among the crowd. It even had its own opening night movie, The Audition, a short film directed by Martin Scorsese and starring De Nero, DiCaprio and Brad Pitt.

Packer called it the “coolest 15 minutes ever made,” but, with an $80 million price tag, it could equally be described as the most expensive advertisement ever made.

But for all the glitz, Studio City was conceived in a markedly different economic climate, before Chinese President Xi Jinping’s anti-corruption drive halted the area’s success story and sent revenues tumbling for 26 straight months.

Studio City went big on non-gaming amenities, positioning itself as a non-VIP gaming destination in order to woo China’s burgeoning middle class.

It has everything from television and film production facilities to a Batman themed 4-D flight-simulator roller coaster ride and a figure-eight Ferris wheel, but thanks to a slowing Chinese economy, visitor numbers to are falling and the hordes of middle classes have failed to materialize.

owns a 60 percent stake in the property, while US hedge funds Silver Point Capital and Oaktree Capital own a 40 percent stake. Bloomberg reported this week that Melco Crown has sought to distance itself from any kind of rescue package for the casino.

“Studio City Casino Macau is within an entirely separate credit group and its debt is non-recourse to Melco Crown Entertainment Limited. […] Investors should not assume that Melco Crown Entertainment Limited will provide any financial support to Studio City Casino Macau or that it would step in for Studio City Casino Macau,” said a Melco Representative.

There is speculation that that Melco is seeking to put the wind up the hedge funds because it wants to buy them out for a good price, and that the negative rating from Standard and Poor’s will strengthen its position.