Credit Rating for Las Vegas Sands Corporation Restored by Standard & Poor's
After undergoing a ratings review, Las Vegas Sands (LVS) has had its credit rating upgraded from "junk" to investment-grade by Standard & Poor's (S&P), now standing at "BBB-" with a "stable" outlook. This upgrade comes approximately 18 months following when S&P initially penalized Sands with a "BB+" rating and a "negative" outlook, due to the slow recovery in Macau, which is the casino operator's major market.
Macau's gaming revenue recovery has been progressing rapidly. In the second quarter of 2023, mass GGR (Gross Gaming Revenue) increased to 87% of second-quarter 2019 levels, whereas VIP (VIP GGR) rose to 35% of the same period's revenue, according to S&P. The recoveries have outpaced S&P's earlier assumptions, which suggested that the mass GGR would reach roughly 75% of 2019 levels in the second quarter and could possibly climb to 85%-90% of pre-pandemic levels by the end of the year.
S&P projects that mass-market GGR will almost reach pre-coronavirus levels in 2023, reaching 85% to 90%. Moreover, the revenue is expected to fully rebound in 2024. This recovery is highly relevant to Sands as it, along with Galaxy Entertainment, is a leading player in the mass and premium-mass betting markets in Macau.
The Benefits of Improved Credit Rating
In broader terms, a higher credit rating is significant for any corporation as it indicates that financing costs will likely be cheaper should they decide to issue debt.
In case Las Vegas Sands decides to issue corporate bonds for funding upcoming projects or improving its existing properties, it could potentially save millions a year on annual interest expenses. By issuing debt with a BBB- rating instead of the former BB+ rating, the company would likely incur lower financing costs.
Sands' enhanced credit grade is bolstered by an anticipated improvement in its earnings before interest, taxes, depreciation, and amortization (EBITDA) outlook, which supports the company's reduced leverage.
“Owing to our improved EBITDA forecast, we now anticipate LVS’ leverage to fall below 3x in 2023, whereas it was previously 3x when S&P revised the outlook to positive in May. This level of leverage offers an appropriate safety buffer for the ‘BBB-‘ issuer credit rating on LVS, allowing the company additional scope to explore subsequent big-budget development projects,” stated S&P.
The Uncertainty Regarding the Bid for New York
Las Vegas Sands is one of the frontrunners vying for one of the three remaining casino permits in the New York metropolitan area. The company has plans to construct an integrated resort in Nassau County, at an estimated cost of up to $5 billion.
S&P mentioned that New York regulators may not announce the successful bidders until next year, and that construction could begin as late as 2025. Consequently, the ratings agency is excluding New York from the company's current credit rating considerations.
“Considering there is considerable doubt regarding when New York will distribute the licenses and whether LVS' bid for a permit will be successful, we haven't integrated a possible New York development into our credit assessments for now,” concluded S&P.
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Source: www.casino.org
