Las Vegas Sands IG Credit Rating Restored by S&P

Posted on: July 26, 2023, 03:47h. 

Last updated on: July 27, 2023, 12:39h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Las Vegas Sands (NYSE: LVS) has seen its credit rating restored to investment-grade status by Standard & Poor’s (S&P).

Sands stock
Sands Cotai Central in Macau. Operator Las Vegas Sands saw its credit rating upgraded to investment-grade status. Image: CNBC)

The research firm now rates the gaming company “BBB-” with a “stable” outlook. The upgrade comes about 18 months after S&P hit Sands with a junk rating of “BB+” with a “negative” outlook, citing the then-sluggish pace of recovery in Macau, the operator’s biggest market. Macau, where Sands runs five integrated resorts, acted as the catalyst for the upgrade.

Macau’s gaming revenue recovery has continued to accelerate. In the second quarter of 2023, market-wide mass GGR recovered to 87% of second-quarter 2019 levels and VIP recovered to 35% of second-quarter 2019 levels,” noted S&P. “The recovery outpaced our prior expectation that mass GGR in the second quarter of 2023 would be roughly 75% of 2019 levels and would accelerate in the second half of the year to 85%-90% of 2019 levels.”

The research firm estimates mass-market gross gaming revenue (GGR) will reach 85% to 90% of pre-coronavirus levels this year, up from a prior forecast of 75% to 85%. S&P sees a full recovery in 2024. That’s particularly meaningful to Sands, which, along with rival Galaxy Entertainment, is a leader among mass and premium-mass bettors who visit Macau.

Why Better Credit Rating is Important

In simple terms, a higher credit grade is important to any corporation, because it implies financing costs will be lower should the company opt to issue debt.

Should Sands choose to sell corporate bonds to finance new projects or enhance existing venues, it would likely save millions in annual interest expenses by selling debt rated BBB- compared to issuing the bonds with a junk rating of BB+.

The operator’s boosted credit grade is supported by an improving earnings before interest, taxes, depreciation, and amortization (EBITDA) outlook, one that positions the company to reduce leverage.

“As a result of our improved EBITDA forecast, we now expect LVS’ leverage to improve below 3x in 2023, compared with 3x when we revised the outlook to positive in May. We believe this level of leverage provides an adequate cushion relative to our threshold for the ‘BBB-‘ issuer credit rating on LVS to allow the company flexibility to pursue additional large-scale development projects,” according to S&P.

New York Not Factored In

Las Vegas Sands is one of the leading contenders to win one of three yet-to-be-awarded New York City-area casino permits. The company is looking to build an integrated resort in Nassau County, and that project could cost as much as $5 billion.

S&P noted that New York regulators aren’t likely to reveal the winning bidders until next year, and that construction on the venues won’t commence until 2025. As such, the ratings agency isn’t currently factoring New York into Sands’ credit grade.

“Because there is a significant degree of uncertainty over when New York will award licenses and whether LVS’ bid for a license will be successful, we have not incorporated a potential New York development in our forecast credit measures,” concluded the research firm.