Studio City Co. Ltd.

The stable outlook on Studio City reflects our expectation that the company will improve its profitability and maintain adequate liquidity by proactively managing debt maturities and capital investment over the next 12 months. We also expect the company's debt leverage to remain high given large capital investments for Studio City Phase II. The outlook also factors in ongoing managerial support and our anticipation of extraordinary financial support from Melco Resorts group, although Studio City's debt is nonrecourse to the group. We may lower the rating if Studio City's EBITDA-to-interest coverage ratio falls below 1.3x or if liquidity deteriorates, due to weaker operating cash flows or more aggressive capital spending on the phase II project than we expect. We may also

...Debt leverage to increase in line with Phase II construction. We expect capital expenditure (capex) needs to exhaust operating cash flow and the shortfall to be funded by new debt, pushing debt/EBITDA ratio higher in 2020. Studio City commenced construction-related work at the site of its Phase II Project in 2018 with an estimated budget of approximately US$1.4 billion (exclusive of pre-opening costs and financing costs); the construction deadline is July 24, 2021....

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