Key Moments:
- Fitch Ratings revised SJM Holdings’ outlook to negative due to sluggish earnings and delayed cash flow at Grand Lisboa Palace.
- SJM’s leverage is projected to increase to about 8 times in 2025 from 7 times this year, improving to 5 times by 2027.
- Quarterly results showed only 1% revenue growth and a 3% EBITDA margin at Grand Lisboa Palace, both falling short of expectations.
Fitch Adjusts Credit Outlook
Fitch Ratings has changed its outlook for SJM Holdings’ long-term foreign currency issuer default rating (IDR) from stable to negative. This shift was attributed to subdued earnings and a slow recovery in cash generation at the Grand Lisboa Palace (GLP) property.
Credit Ratings Affirmed, Caution Issued
The agency affirmed both the casino operator’s IDR and its senior unsecured rating at “BB-.” The same rating applies to notes issued by SJM’s subsidiary, Champion Path Holdings, according to Fitch.
Fitch explained that the outlook revision reflects increasing doubts about the company’s ability to decrease its debt load, pointing to slow improvements in EBITDA and cash flow at GLP. The agency cautioned that further operational shortfalls could prompt additional negative rating actions.
Deleveraging Lags Expectations
SJM Holdings’ efforts to reduce leverage are falling short of previous forecasts. Leverage is now expected to rise to approximately 8 times in 2025 from 7 times this year, before gradually decreasing to 5 times by 2027.
| Year | Projected Leverage (x) |
|---|---|
| This year | 7 |
| 2025 | 8 |
| 2027 | 5 |
Grand Lisboa Palace Faces Operating Challenges
Challenges facing SJM Holdings were underscored by its second-quarter performance. Grand Lisboa Palace achieved only 1% quarter-on-quarter revenue growth and a 3% EBITDA margin, both of which did not meet projections. In contrast, Macau’s gaming sector as a whole expanded by 8% year on year.
SJM lost market share during this period, a development linked to competitors’ new hotel launches and heightened marketing activity. At the same time, the company contended with higher marketing and operating expenses, which further pressured margins.
Strategic Restructuring and Expansion Efforts
SJM is restructuring its operations as satellite casinos are set to close by the end of 2025. This restructuring involves reallocating 458 gaming tables and more than 4,000 staff members to its self-operated properties. The company intends to expand the gaming floor at Casino Lisboa and seek acquisitions of sites like Casino L’Arc and Ponte 16 to reinforce its standalone venues.
Initiatives also include attempts to enhance Grand Lisboa Palace’s appeal in the mass-market segment by upgrading transport, dining, retail, and event offerings. However, Fitch flagged uncertainty regarding the ability of these strategies to increase market share.
Comparative Outlook and Future Prospects
According to Fitch, SJM’s business profile continues to trail that of U.S.-based companies such as Wynn Resorts, MGM Resorts International, and Las Vegas Sands. Nonetheless, the agency anticipates that SJM will reduce leverage over the medium term as it repays debt tied to the Grand Lisboa Palace project and pandemic-related challenges.
- Author
Daniel Williams
