Macau has come a long way in the last 12 months. The former Portuguese colony, well-known for its gambling history, is developing rapidly from a seedy gaming centre into a bustling and glamorous resort, bringing the Chinese Special Administrative Region (SAR) closer to the Las Vegas model to which it is so often compared.

When Wynn Macau approached the international loan market with a $397 million project loan last year, little was known about Macau or the gaming industry. The first internationally-operated casinos – the Sands Macau and the Galaxy Waldo – had only just opened their doors and the project's US sponsor, Wynn Resorts, was a start-up company. Since then, revenue from Macau's gaming industry has surpassed all expectations, ground has been broken on a myriad of other projects, and Wynn Resorts opened its first property, the Wynn Las Vegas, in April 2005.

So when Wynn returned to the debt market a year later to fund an expansion of the Macau hotel and casino complex, international lenders were already more familiar with both the Macanese gaming industry and the sponsor company, and Wynn Macau was able to take full advantage.

Wynn raised the idea of the expansion with banks at the end of 2004, barely three months after the original financing was completed. Deutsche Bank and SG, mandated lead arrangers on the first deal, were mandated in April 2005, joined this time by Banc of America Securities, a bank which has strong ties with the sponsor's US parent through the financing of the $2.7 billion Wynn Las Vegas resort that opened in April 2005.

Phase II was signed a year to the day after Wynn completed its original financing, on 14 September. However, arrangers caution against reading too much into the choice of date: the second facility was not discussed at the time of the original deal, even though Wynn had planned the expansion in advance (to avoid excessive construction noise once the main hotel opens, the foundations for the additional development were to be built as part of the original project). The short gap between the two deals reflects the booming interest in Macau, and the choice of date is pure coincidence.

The second deal is both an expansion and an improvement for Wynn, since the company raises a higher volume at a reduced cost. The second financing allows the borrower to develop the remaining portion of its 16 acre plot in downtown Macau, and increases the total borrowing amount from $397 to $764 million. Phase II will add another 75,000 square feet of casino space, two more restaurants, a theatre, and a dramatic front feature attraction – the specifics of which remain a closely-guarded secret.

As in 2004, the syndicated financing is divided into a term loan and revolving credit facility (HK$117 million). The $729 million term loan is denominated in Hong Kong and US dollars, and is further split into a hotel tranche and project tranche, allowing some lenders who are unable to finance gaming ventures to participate in the hotel financing. The project facility comprises $546.7 million of base debt and a further $59.9 million of contingent debt; the base and contingent portions of the hotel facility are $110.3 million and $12.1 million respectively.

The total budget for the Wynn Macau development has now grown to $1.1 billion, up from the $704 million original project. As all the additional money is debt, the gearing has shifted, and some of the original equity has been converted to contingent equity. Structurally little has changed from Phase I, with the novel security arrangements again needing lengthy negotiation with the Macau government to ensure a third-party would be allowed to operate the casino in case of default. One notable amendment allows Wynn free use of any revenues from the granting of sub-concession licences to other potential casino operators, as provided for under the company's 20-year concession from the Macau government. In the first deal, sub-concession revenues were included in the security package.

If the 2004 deal was all about structure, then the expansion financing is defined by its pricing. International appetite for both the jurisdiction and borrower had clearly grown, but the lack of any other activity meant that the Wynn deal would again have to be its own benchmark.

The new term loan – now down to a six-year deal from the original seven – was pitched to banks at 300bp, down 50bp from last year, and was 50% oversubscribed. Wynn then went back to the syndicate and negotiated a further reduction: the margin will now step down to 275bp after the opening of the main complex, scheduled for September 2006, and this will fall further according to the borrower's leverage. The spread will drop to 250bp once the borrower's senior debt to ebitda ratio falls below 2x; and a ratio of less than 1.5x will see the margin drop to a floor of 200bp.

Some 28 banks joined the enlarged facility, exactly double the original syndicate, and all recommitted despite the unusual reverse flex, the first of its kind in an Asian project financing. Of the lenders on the 2004 deal, only three – ICBC (Macau), Shinsei, and Canadian Eastern Finance, a joint venture between CIBC and Hutchison Whampoa – did not recommit, and ICBC is in fact present in the expanded deal through ICBC (Asia).

With Singapore preparing to issue its own casino concessions, it is worth noting that the new syndicate includes two Singapore-based banks, DBS and UOB. Wynn's experience in Macau will also do it no harm should the company end up on the shortlist.

Wynn Macau
Status: Signed September 14, 2005
Size: $1.1 billion
Location: Macau SAR, China
Description: Expanded casino and hotel complex
Sponsor: Wynn Resorts
Debt: $764 million
Arrangers: Banc of America Securities, Deutsche Bank, SG
Lender counsel: Clifford Chance
Sponsor counsel: Skadden Arps Slate Meagher & Flom