Las Vegas Sands Credit Rating Could Be Hindered by Shareholder Rewards

Las Vegas Sands' credit rating could be affected by shareholder premium

Moody's Investors Service says Las Vegas Sands Corp's (NYSE: LVS ) shareholder rewards, including buybacks and dividends, could hinder credit upgrades.

Moody's reiterated the casino operator's "Baa3" rating and "stable" outlook and said it expected Sands to continue paying dividends and repurchasing its shares, measures that could act as "credit constraints." A "Baa3" rating is three levels down from junk on Moody's scale. After suspending quarterly dividends early in the coronavirus pandemic, LVS resumed dividend payments last July, distributing $150 million to investors in the third and fourth quarters.

The Stable Outlook reflects our expectation that attendance and gaming revenue will continue to increase in 2024, allowing Las Vegas Sands to return credit metrics to levels consistent with our expectations for the Baa2 Sand China Ltd/Baa3 Las rating. Including leverage is in the low 3x range," Moody's noted.

Currently, Sands China does not pay dividends and is one of the three major operators in Macau that does not pay dividends. However, analysts expect the company to be the next to rejoin the Macau Dividend Group. Last October, LVS also announced a $2 billion stock buyback program.

Expansion may also affect Sands’ credibility

Moody's noted that Sands Group is likely to continue to maintain adequate liquidity, manage upcoming debt maturities, and potentially reduce overall leverage. However, leverage may increase if the operator successfully pursues various new projects.

These include a New York City-area casino license, an integrated resort in Texas, and the ability to bid for a casino in Thailand if the country officially approves regulated gambling. Of the three cities, New York is the most likely in the medium term, but even then bidders there may not know their fate until late 2025.

Moody's expressed concern that LVS is "pursuing additional and significant global casino resort development opportunities that may be financed primarily through debt, which could result in temporary leverage."

Sands' credibility and prospects are underpinned by the "high quality, visibility and reputation" of the venues it operates.

Sands still has a strong liquidity position

Sands won't be using newly issued debt to pay shareholder premiums, which is a plus in a high interest rate environment. The company had an unrestricted cash balance of $5.11 billion at the end of last year, indicating it has the resources to support buybacks and dividends.

Furthermore, reinstating the dividend makes sense, as it did before the suspension, and Sands has one of the best reputations for increasing payouts in the broader consumer discretionary sector. Likewise, a credit rating downgrade is unlikely in the near term.

Moody's added that LVS's credit rating could be downgraded if operators' liquidity becomes tight or if the recovery of bookmakers' profits takes longer than expected. An unexpected turnaround in Macau or a general decline in consumer activity are other factors that could trigger a downgrade.