Melco Resorts (Macau) Ltd.

The stable outlook on Melco Resorts reflects our expectation that MLCO's business fundamentals will remain solid as its product mix improves with a greater focus on mass-market gaming. We expect the group to continue with aggressive dividend payouts and capital investments over the next 12 months, which can lead to negative discretionary cash flows, with the shortfall funded by debt. We expect MLCO's debt-to-EBITDA ratio to stay at 2.2x-2.6x during the period. We could lower our ratings on Melco Resorts if the credit profile of MLCO or the ultimate parent, Melco International group, weakens significantly. MLCO's debt-to-EBITDA ratio approaching 3.5x may indicate such a deterioration. This could happen if MLCO's market position deteriorates or the gaming industry turns challenging in

...Good market position to stay. Melco Resorts (Macau) Ltd. is one of the six casino concession or sub-concession holders in Macau, a limited-license market. We remain positive on the long-term growth of the Macau gaming industry because it is the only legalized casino market in Greater China. Parent's growing mass-market exposure is positive. Melco Resorts' parent Melco Resorts & Entertainment (MLCO) focuses on the mass-market gaming segment, which is more profitable and less volatile than the VIP gaming segment. That is because of the absence of a junket system, which absorbs operators' margins and leaves them dependent on liquidity provided by junkets. We expect limited impact to MLCO from weakness in the VIP gaming segment, given our estimate that the mass-market segment accounted for 80%-85% of MLCO's EBITDA in 2018. Aggressive capex and shareholder returns limit rating upside.MLCO's capital expenditure (capex) is likely to remain elevated and should peak in 2020, in line with the needs...

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