Moody’s downgrades SJM Holdings to ‘B2’, warns of ‘very high leverage’

Moody’s Ratings has downgraded Macau casino operator SJM Holdings Ltd’s corporate family rating to ‘B2’ from ‘B1’, with the firm’s rating further sinking below investment grade. In addition, it downgraded the ratings on the bonds issued by Champion Path Holdings Ltd and SJM International Ltd, both guaranteed by SJM Holdings, to ‘B3’ from ‘B2’. The institution changed the outlook for SJM Holdings’ and related entities to “negative” from “stable”, it said in a memo issued on Thursday. “The downgrade reflects SJM Holdings’ very high leverage, mainly driven by weak earnings amid a moderating gross gaming revenue (GGR) growth environment in Macau”, said Stephanie Lau, a Moody’s Ratings senior vice president, quoted in the memo. Ms Lau added that the negative outlook reflected the “uncertainty regarding the pace of deleveraging” of SJM Holdings and the company’s “significant refinancing needs over the next one to two years, which could weaken liquidity”. The firm swung to a HKD397-million (US$50.6-million) loss for the third quarter, versus a HKD9-million profit in the prior-year period, it reported last week. Net gaming revenue for the latest reporting quarter was down 27.2 percent, at just under HKD4.76 billion. SJM Holdings’ flagship operations are Grand Lisboa Macau (pictured in a file photo), a casino hotel on Macau peninsula, and Grand Lisboa Palace Resort Macau, its large-scale resort in the city’s Cotai district. The firm also runs casino operations at Casino Lisboa, Casino Oceanus at Jai Alai and Casino L’Arc Macau. According to Moody’s, SJM Holdings’ leverage in the 2026-2027 period “will remain elevated because of the weaker industry GGR environment, the gradual pace of operating cost reductions and its moderate market share”. The institution projects adjusted debt to earnings before interest, taxation, depreciation and amortisation to weaken to 9.9 times in 2026 from 9.0 times in 2025, before improving to around 9.0 times in 2027 and 8.3 times in 2028. “However, the pace of deleveraging remains uncertain and will depend on the extent of the company’s earnings recovery and debt reduction”, the rating house noted. Moody’s said it expected Macau’s industry GGR to register a “slight decline” in 2026 and “remain broadly flat” in 2027. “Against this backdrop, there is limited visibility into whether SJM Holdings’ leverage will improve toward or below 8.5 times, the required threshold for the ‘B2’ corporate family rating”. The institution labelled SJM Holdings’ liquidity position as “weak”. The firm’s unrestricted cash balance of HKD2.3 billion at June 30, 2026, combined with operating cash flow, “will be insufficient to cover expected capital spending and upcoming debt maturities over the next 12 to 18 months”, it noted. Upcoming obligations, according to Moody’s, include term loans and other bank loan maturities and amortisation payments, HKD1.9 billion of convertible bonds that become puttable in June next year, and US$500 million of senior notes due in January 2028.