Fitch Ratings: Australia's Crown Resorts Has Cushion to Manage Coronavirus Shutdown

(The following statement was released by the rating agency) Fitch Ratings-Sydney-April 01: Crown Resorts Limited's (BBB/Stable) low net debt position at 31 December 2019 and highly variable cost structure provides the Australian gaming operator with headroom to absorb the effect of the government shutdown of casinos in the country, says Fitch Ratings. This is despite the significant reduction in Crown's revenue, and high capital expenditure over the remainder of 2020 as it completes its Crown Sydney property. Fitch expects Crown's ability to generate cash inflows from its operations to be severely restricted following the Australian government's decision to close casinos nationwide on 22 March 2020 as it seeks to slow the spread of coronavirus. Crown has now closed its entertainment venues in Melbourne and Perth, apart from the provision of takeaway meals at some of its restaurants, and has also closed Aspinalls, its VIP venue in London. However, it continues to provide hotel accommodation on a reduced basis, including working with the Australian government to provide rooms to isolate arrivals into the country under current Australian regulations. Crown is still assessing the financial implications of the shutdown on the business, and has not announced the measures in intends to take to manage its business while the restrictions remain in effect. Importantly, Crown has no significant bond maturities before the financial year ending June 2025 (FYE25) - although around AUD230 million in committed credit facilities mature within the next six months which Fitch expects Crown to be able to renew - manageable covenant risk, and available liquidity to meet operating expenses over the duration of the shutdowns. Fitch believes that the company will be able to reduce its cash outflows significantly over this period, given its highly variable cost structure - benefiting in particular from the ownership of its properties (and rentals for the Melbourne land are minimal under the agreement with the Victorian government). These actions may include standing down staff and a reduction in other overheads, as well as incurring lower gaming taxes which directly reflect the decline in gaming volumes. Furthermore, we believe that Crown could implement extraordinary measures, such as the suspension of its dividend, even though it has a fixed-dividend policy, to preserve cash and maintain the strength of its balance sheet. Fitch expects Crown's leverage metric, FFO adjusted net leverage, to rise to 1.8x at FYE20 from a net cash position of 0.2x at FYE19 - well below 2.5x, the level where we would consider taking negative rating action - if the government-mandated closures of its casinos remain in effect for the rest of the financial year. This includes the effect of Crown's ability to reduce its variable costs in line with the decline in its operations; payment of its interim dividend; and continuing construction of Crown Sydney. Furthermore, the Australian government's announcement on 30 March 2020 that it will provide fortnightly payments to workers throughout the country that have been stood down may help Crown reduce its cash outflows quicker than previously envisaged as employees may use less of their annual leave entitlement - which Crown would need to fund - to substitute their lost wages. However, we have assumed that Crown would utilise its available liquidity, including cash on hand and undrawn committed facilities, during this period to offset the reduction in cash inflows (1HFY20: AUD501 million and AUD201 million, respectively). We believe that Crown would be able to deleverage from FYE21, should restrictions be lifted from July 2020 and demand recovers progressively over 1HFYE21. Under this case, we have assumed that Crown does not declare a final dividend for FYE20 and interim dividend in FYE21 to preserve its liquidity without the need to raise additional debt, but that final dividends are resumed in FYE21. We then expect Crown to deleverage quickly from FYE22 as normal operations resume for the full-year and Crown Sydney commences operations in early 2021. Contact: Kelly Amato, CFA Director +61 2 8256 0348 Fitch Australia Pty Ltd Level 15, 77 King Street, Sydney NSW 2000 Media Relations: Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com; Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. 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