New Cotai Holdings LLC, a major shareholder in Macau integrated resort operator Studio City International Holdings, has filed for bankruptcy.
Bloomberg reported on Thursday that New Cotai, which holds a 23% stake in Studio City, filed for Chapter 11 bankruptcy protection in New York earlier this week with liabilities of between US$500 million and US$1 billion. Its subsidiaries New Cotai Ventures LLC, New Cotai LLC and New Cotai Capital Corp have also filed for bankruptcy.
New Cotai Holdings, formed in 2006 as a vehicle to invest in Studio City, is backed by hedge funds Point Capital LP and Oaktree Capital Group LP. The company had originally held a 40% stake in Studio City, with Melco Resorts and Entertainment holding the other 60%, but saw its stake diluted after Melco held an IPO for Studio City shares last year.
According to reports, the bankruptcy is a result of New Cotai lacking the funds to redeem the balance of previously issued notes amounting to US$856 million.
It also opens the door for Melco Resorts to increase its interest in Studio City – an ambition Chairman and CEO Lawrence Ho has eluded to in the past – although such action is far from certain according to analysts.
“In our view, a buyout of the Studio City minority shareholders (in whole or in part) is not very likely in the near term,” said Bernstein’s Vitaly Umansky, Kelsey Zhu and Eunice Lee in a note.
“There is optionality for Melco to wait to see what happens with the Studio City share price as the bankruptcy unfolds. Further, Studio City will need to begin Phase 2 development at some point in the foreseeable future. If equity financing is needed (as may be the case) Melco may wish to facilitate the publicly trading Macau Studio City stock to raise some of the equity needs.”
