New Cotai Holdings, a major shareholder in Macau’s Studio City, has filed for bankruptcy protection in the United States.
New Cotai, which at one time held 40 percent of the $3.2 billion Cotai megaresort with the backing of hedge funds Silver Point Capital and Oaktree Capital Group, reportedly was on the verge of missing a deadline to redeem US$856 million in notes when it sought shelter under Chapter 11 of the U.S. Bankruptcy Code listing its collective liabilities at $500 million to $1 billion.
News reports said New Cotai entities blamed several factors for its difficulties. They included “unanticipated declines in the Macau gaming market,” construction costs that were US$300 million greater than anticipated; that the Macau government’s gaming table allocation for Studio City had been lower than New Cotai had anticipated; and that Studio City pushed back the planned completion of a $1.4 billion expansion from July 2018 to July 2021.
New Cotai is a holding entity, so the filing doesn’t affect operations at Studio City, and while experts believe majority owner Melco Resorts & Entertainment is more than capable of financing the expansion, there is concern that the bankruptcy might disrupt efforts to raise money in the capital markets.
S&P Global Ratings termed it an “overhang” with the potential to land a large supply of Studio City shares in the market “if there are no takers.”
The potential takers, presumably, would be led by Melco, although analysts believe it is more likely that Nasdaq-listed Melco will hold off while the financial markets attempt to sort through New Cotai’s troubles to assign a value to its stake.
Melco Chairman and CEO Lawrence Ho said at the time of the IPO, “It’s clear that those guys are very smart and very good at what they do. They’re distressed debt guys so there’s never going to be a scenario where we can take advantage and try to take them out at below market value.”
At the time, he said, the two sides couldn’t agree on a “fair market” price for Studio City, adding, “If we do buy them out at a higher valuation somewhere down the road, so be it..”
