Melco Soothes Credit Concerns

I feel Ho's comment suggest there is a good chance that the two parents will step in to provide the backing of the company's future casino projects if there are difficulties finalizing the credit facility. The Macau market is seeing tremendous growth.

Melco International and Australia's PBL are currently precluded from buying back the entire Melco PBL vehicle since there was an IPO in December. However, given a disaster scenario where the credit line cannot be syndicated -- which is unlikely -- then the two parents likely could avoid shareholder lawsuits by offering to buy back all of Melco PBL.

Importantly, Melco also has support of several large institutional shareholders, including Janus Capital(JNS Quote), its second-largest institutional shareholder. Janus raised its Melco PBL stake by 38% to 12.8 million shares in the second quarter.

Melco International and PBL, the parents, are very well-capitalized and are in the midst of doing a $250 million convertible bond offering, which will fund a massive share buyback. This convert deal, which Melco PBL management said will be finalized in a few weeks, will not affect Melco PBL's balance sheet or income statement. Instead, the parent companies will be using the convert proceeds to reduce the float of Melco PBL.

This should prove a solid floor under the stock and will help scare away short-sellers, who continue to pile into Melco.