Public perception is a crucial part of any operator’s success, especially in the gaming industry. Wynn Resorts knows this for all the wrong reasons, as they had their hands full with sexual harassment and spying allegations against Steve Wynn, the founder and former CEO of the company, as well as several other prominent figures. Despite the initial outrage and negative press, the operator has seen a rather unexpected rise in share prices. Why, exactly?
Believe it or not, the company announced that it sold a large chunk of its corporate debt in a private offering, which had been unreported until Tuesday’s press release. Instead of just reassuring investors and board members about the company’s near future, Wynn Resorts (NASDAQ:WYNN) also reported success on the stock market.
The Improvement Everyone Was Waiting for
Wynn Resorts was definitely in the midst of a rough patch, as it recently reached a 52-week low point in terms of the stock price. Because of the scandals that rocked the company, as well as the current cessation of gambling operations throughout the world, many experts believed that Wynn would see even darker days. This was also because Macau, the company’s focus in the last few years, has seen a drastic fall in traffic.
Nevertheless, Wynn Resorts rocked the gaming world with a data-packed press release on Tuesday, indicating that they have been moving in a more positive direction. The first piece of information to intrigue everyone was the fact that Wynn apparently sold more $600 million of their corporate debt. The notes that were sold in a private offering reportedly have a coupon of 7.75%. Even though such a move is far from groundbreaking, Wynn deserves praise for its boosting of the sale size. Investors greatly appreciate such efforts.
As a part of the press release, Wynn also said that they have upwards of $3 billion in liquidities, which is a result of two previous bond sales last year. During this unstable period, equity experts are usually keeping an eye on companies that have significant amounts of conserved capital. However, not even the most clairvoyant of us all could predict such a sudden announcement by Wynn Resorts. Currently, they are poised to be one of the most well-off gaming enterprises, with enough liquid capital to sustain them for a period of 15 months.
Once Wynn’s moves had become public, other companies also started pondering potential public offerings. It is widely seen as a risky move, but one that is fruitful when it comes to short-term security. Now more than ever, companies need an amount of capital they will be able to use in case they need to ‘patch-up’ a lack of traffic.
Despite the shrewdness of Wynn’s moves at the end of the day, they are still projected to see a 43% drop in Q1 revenue on a year-over-year basis. Thus, it is expected that most of the company’s capital will be used to make up for the current lack of business. In the press release, they also mentioned that the priority is to use net proceeds for corporate purposes and to cover all the necessary expenses and fees.
Even JPMorgan, always known to doubt Wynn’s stock, retracted a previously given ‘overweight’ rating for the gaming company’s stock. However, praise is far from equivocal. Several rating agencies have given a C or B rating to Wynn’s offering, stating that the brand is still not stable enough to be a target for long-term investments. Q4 is considered to be a reasonable time limit, in which Wynn Resorts can partially recover.
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