Fitch Ratings has downgraded Universal Entertainment Corp’s long term issuer default rating to CCC+ from B, on what it said were risks regarding the company’s liquidity, given the potential for “further deterioration” in the group’s casino business.

CCC levels indicate a substantial credit risk, with the probability of default.

A subsidiary of Universal Entertainment, which is a Japanese gaming conglomerate, operates the Okada Manila casino resort in the Philippines.

The ratings agency said it was also downgrading Universal Entertainment’s outstanding U.S. dollar senior secured notes to CCC+ from B with a recovery rating of ‘RR4′, meaning a very weak rating with an “average” recovery assessment.

“The downgrade reflects our view that unless the company’s free cash flow improves significantly in the second half of 2021 or additional funding is raised, Universal Entertainment may have insufficient liquidity to meet the repayment of US$118 million senior secured notes due in December 2021,” stated Fitch.

The institution said it believed “there is a risk of prolonged free cash flow weakness” amid the pandemic uncertainty, and the “risk of further deterioration” in both the group’s casino and the amusement equipment businesses.

It added: “Universal Entertainment is highly exposed to the pandemic as operator of the Okada Manila, the largest integrated casino resort in Manila’s Entertainment City, and in its Japanese amusement equipment business, which produces and sells pachinko and pachislot in Japan.”

Fitch also noted that the recovery in the casino business could be hampered by “travel restrictions, outbreaks and further lockdowns”.

Editing by Rachel Hu