It has been reported that New Cotai Holdings LLC, one of the Studio City International Holdings Limited shareholders has filed a request for protection under Chapter 11, the US Bankruptcy Code due to inability to pay $856 million in accumulated debt. The company has stated various reasons why it came to this, leaving them no options but to file for bankruptcy. Some of the mentioned reasons are an unexpected decline in the Macau gaming market and additional construction costs, all of which have resulted in an unpredictable loss of revenue and eventually an inability to continue with operations.
A decision to File for Bankruptcy
With 23% stake in Studio City International Holdings Limited, New Cotai Holdings LLC has just recently sought after another opportunity with the United States Bankruptcy Court for the Southern District of New York. What led to this was the fact that the company, along with three affiliate partners have accumulated about $1 billion debt, owed to approximately 20 investors. A special hearing was scheduled on May 9 when there will be a chance for an initial appeal to be considered.
Since the opening in 2015, the Studio City Macau integrated casino resort was managed by Studio City International. In the beginning, New Cotai Holdings LLC had a 40% stake which changed soon by decreasing when a public offering exercise was finalized and a big share of this 40% was sold off to other investors.
The largest shareholder in Studio City International is Melco Resort and Entertainment Limited, a subsidiary of Melco International Development Limited. About 13% is owned by several affiliates of Silver Point Capital LP, an investments company.
A recent development which concerns New Cotai and the company’s three partners surfaced when they hit the wall because they couldn’t sort out unsecured notes that were due to arrive. In their defense, their troubles were caused by numerous unforeseen events such as an unexpected decline in the Macau gaming market as well as unpredicted construction costs that reached $300 million.
A decision to grant fewer licenses for table games, made by Macau government, was also added among factors which had an influence on causing the company’s predicaments.
In their announcement, New Cotai uncovered that their financial situation was additionally compromised when Melco Resort revealed that they’ll be stopping the Studio City Macau’s VIP gaming operations starting with January 2020. Melco Resort also announced that the second-phase plans for Hollywood-themed venue were suspended and scheduled to finalize three years from now (July of 2021).
Asian branch of Sanford C Bernstein and Company, a global brokerage firm gave predictions, saying that recent events could, at some point, persuade Melco to buy New Cotai’s stake of Studio City International. It might happen when the cost is reduced. On the other hand, these are only predictions which might not lead to anything.
Originally, Studio City International was opened in October 2015, and spectacularly so with The Audition, an advertisement, directed by Martin Scorsese. This short film, created for Studio City Macau Resort and Casino’s promotional purposes cost $70 million, featuring brilliant actors such as Leonardo DiCaprio, Robert De Niro, and Brad Pitt.
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