Melco Crown Entertainment: Rolling the Dice and Other Ways to Raise Capital Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

MELCO CROWN ENTERTAINMENT

Rolling the Dice and Other Ways to Raise Capital

Q1.) Put yourself in the position of Brian Masterson: In preparation for the impending Board meeting, provide a detailed analysis of the opportunities and the problems encountered by MCEL so far;

Brian Masterson was in an exciting dilemma to choose the best alternate financing source available to Melco Crown Entertainment (MCEL), however, it has never been in a financially good position through generation of positive income streams from its operations and the losses trend were still faced by the company. Moreover, MCEL was encountering fund raising issues because its financial position was not attractive enough to satisfy the fund providers.

Meanwhile, it has several opportunities to expand its business, the first two opportunities was in the form of two investment projects that were under development. The first project was Crown Macau Hotel, which was expected to be launched by mid of 2007, meanwhile, total cost to develop Macau Hotel was around $512.6 million out which $260 million had already been spent and another $190 million were required to spent in 2006 followed by final capital expenditure of $62.5 million during the year 2007 in order to timely complete and launch the hotel by the end of 2007.

Moreover, second project that was an opportunity to develop a casino called City of Dreams; which would be launched by the end of 2008; meanwhile the total cost of completing this was estimated to be $2.1 million out of which $160 million had already been spent during the year 2006 and another $140 million were expected to be spend by the end of 2006 followed by $66 million expected be spent during the following three years. Moreover, $100 million would be required in order to finance working capital requirements. Meanwhile, a third opportunity was a similar project that has been committed by MCEL and it was planning to start the development process for this site as well.

Crown Macau Hotel and City of Dream casino will bring more revenue generating capabilities through addition of gaming tables and machines along with luxury hotel rooms into MCEL portfolio, which will turn its operating losses and negative cash flows to positive operating profits. Crown Macau Hotel project is expected to generate operating cash flows of $75 million in the first full year of operations and City of Dreams project will start to generate profit of $400 million from 2008. Meanwhile, these operating cash flows are further expected to grow by 5% each year thereafter. Therefore, this opportunity will prove to be a turning point for MCEL, which has been incurring constant losses over the past performance.

Moreover, MCEL is considering the repayment of an outstanding debt of $514 million, which bears fluctuating interest based on the LIBOR although the debt will mature by the mid of 2011 but MCEL wants to repay the loan before its maturity.

However, MCEL’s operations were not generating enough cash flows and operating profits, which could be used to finance the capital expenditure requirements. Therefore, MCEL was considering various types and sources of finance in order to complete projects within the deadlines and if it failed to launch within

deadlines then it would have to delay the potential profits by incurring more losses from the existing business.

Q2.) How much funding will MCEL need now, and how much will it need for the longer term?

Current requirement of funding is based on the expenditure required for the development of Crown Macau Hotel and City of Dream casino sites and during the year 2006, MCEL will need $190 million for hostelling project and $140 million for casino site development and a total of $330 million to finance these capital expenditures, Further during the year 2007, MCEL will require $62.5 million to finance development expenditure of Crown Macau Hotel along with working capital requirement of $50 million in the first year of operations, however, first years operations will generate after tax positive operating cash flows of $21.13 million. These are assumed to be generated evenly over the second half of 2007 operations, therefore, during the year 2007 total financing for hostelling project will be $91.38 million on the other hand casino project will require capital expenditure of $600 million, hence, a total of $691.38 million financing will be required during the year 2007.

Later on, during the year 2008 the only project under development will be City of Dreams casino and it will require $600 million during 2008, however, Crown Macau Hotel project will have been fully operational and will generate after tax operating cash flows of $48.75 million during the year 2008, which will lower down the financing needs to $551.25 million during that year.

Moreover, during the year 2009 MCEL will require additional $600 million in ............................

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The case is considered as an investment banker advising financial officer Melco Crown Entertainment Limited (MCEL), casino and entertainment company based in Macau, will offer financial company two new gaming resorts currently under construction. The development of these properties has stopped due to lack of funding and the timing of the project began to be questioned. The decision on the best means for increasing the required capital must be done quickly and MCEL not be able to benefit from a profitable, growing gaming market in Macau. Recommendations should take into account the need to improve both the immediate capital to get the project back on track, and the need of long-term financial flexibility to take advantage of future opportunities. The case deals with various domestic and international options to determine which best meet the needs MCEL author. "Hide
by Steven Sapp, Matthew Gray Source: Richard Ivey School of Business Foundation 15 pages. Publication Date: August 31, 2012. Prod. #: W12210-PDF-ENG