Macau Capital Markets Deal
Despite being launched during last summer’s dire market conditions, Melco PBL Gaming Macau’s US$1.75bn dual-tranche facility weathered the storm superbly. The deal impressed both in size and complexity and was pulled off with aplomb. As a result, the transaction is IFR Asia’s Macau Capital Markets Deal of the Year.
Macau recently overtook Las Vegas as the global leader in the casino market. Therefore, it seems only natural that the scale of the fundraising for the new mega-casinos should reflect the peninsula’s newly acquired status. The transaction that best encapsulated this new spirit of bold ambition in 2007 was Melco PBL Gaming Macau’s US$1.75bn dual-tranche loan.
The facility was initially launched into sub-underwriting as a US$2.75bn seven-year, three-tranche bullet loan in early July comprising a US$1bn Term Loan A, a US$1.5bn Term Loan B, and a US$250m revolver.
The bigger financing was planned to fund City of Dreams, an apartment/hotel complex and a separate hotel project in the Macau peninsula.
Following the credit market turmoil in the US, the original leads – ANZ Investment Bank, Banc of America Securities Asia, Barclays Capital, Deutsche Bank and UBS – restructured and downsized the deal to US$1.75bn in early September.
Arrangers took out the Term Loan B tranche, which was to be targeted at the US institutional market and was to fund the apartment/hotel complex and a hotel project. The latter two were removed from the financing group to reduce the funding needs by US$1bn.
Crown Macau, the Mocha slots business, LicenceCo and City of Dreams were all packaged and ring-fenced into the obligor group on the new financing, while the other projects were left out to be funded separately. The margin was increased from 225bp to 275bp over Libor and was tied to a leverage grid. Fees were also increased by 25bp.
Contingent equity of US$250m from the sponsors backed by a letter of credit from any Single A rated bank was also included in case of cost overruns during the construction of City of Dreams.
Also included were a cash-sweep mechanism to avoid cash leakage and full financial covenants relating to the debt-to-Ebitda ratio, Ebitda-to-interest ratio, debt service coverage ratio and limits on capex. The restructured borrowing represented a debt-to-equity ratio of 1.75 times and a conservative loan-to-value ratio of 38%.
Critics of the deal were quick to point out that the downsizing of the transaction was a sign of weakness, not a mark of its success. However, others thought that it was a move that managed skilfully to balance the needs of the borrower with the expectations of the participating lenders. The restructuring reflected the responsiveness of the leads and the borrower to adapt to the change in market conditions.
By late September, the deal had already picked up good momentum, with 11 lenders joining the five MLAs in sub-underwriting. In fact, the deal’s reception was bolstered by news of a big-ticket underwriting commitment by heavyweight Citi.
The response vindicated the leads’ confidence in the tightly covenanted and well-structured financing. The restructured deal was so well received that the leads achieved a near-100% hit rate on the invitations for participation sent out to potential lenders.
When syndication closed, the deal had seen participation from almost 30 banks, including some first-time lenders to Macau credits. Those included Australia’s Commonwealth Bank of Australia and nabCapital, Iceland’s Landesbanki, and Taiwan’s Taishin International Bank.
The result was all the more impressive considering that the project was sponsored by two unproven entities – Melco and PBL – which were coming together for the first time.
The successful loan proved to be a catalyst for future fundraisings. In fact, as the deal was in general syndication, Melco PBL raised US$581.2m through an ADR that partly made up for the shortfall in financing due to the cancellation of the US$1.5bn Term Loan B tranche.
Even with the reduced size, the loan was still big enough by Asian standards. Although the sub-prime crisis reared its head again as syndication drew to a close, the deal managed to pull through largely because it was targeted at the Asian lending community. To that extent, it represented the largest purely Asian syndicated loan from Macau.
Prakash Chakravarti, Lesley McColl