Las Vegas Sands Lender Relaxes Covenant Requirement, But There’s Dividend Dilemma

Posted on: September 24, 2020, 12:14h. 

Last updated on: September 24, 2020, 12:42h.

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

Las Vegas Sands (NYSE:LVS) has reached an agreement with a creditor on looser covenant requirements. But that extra breathing room could weigh on the gaming company’s efforts to restore its dividend.

Las Vegas Sands dividend
The famed canals at the Venetian Las Vegas in a dry state. Las Vegas Sands could replenish its dividend, but it’ll need to answer to creditors first. (Image: Associated Press)

In a filing with the Securities and Exchange Commission (SEC), the Venetian operator reveals it entered into a definitive agreement with the Bank of Nova Scotia and a consortium of other lenders on a $1.5 billion revolving credit facility. Prior terms of the agreement were set in August 2019.

Under the new accord, the gaming company must maintain liquidity of $350 million as of the last day of each month. Previously, creditors mandated that LVS have a consolidated leverage ratio not to exceed 4:1. That gives the borrower added flexibility, and in a lengthy zero-revenue revenue environment, could help it avoid default. But Sands isn’t getting a free lunch here.

Pursuant to the amendment, the existing revolving credit agreement was amended to include a limitation on the borrower’s ability to declare or pay any dividend or other distributions during the period commencing on the closing date, through and including December 31, 2021,” according to the filing.

Citing market weakness created by the coronavirus pandemic, LVS in April suspended its dividend. At that time, the annual payout was $3.16 per share, meaning the operator will save $2.34 billion if it goes a year without that distribution.

Hope Burns Eternal

Prior to the dividend halt, LVS had one of the richest distributions in the gaming industry, and the company’s penchant for consistently boosting the payout was frequently cited as a source of allure for investors considering the stock.

In fairness to the largest Macau operator, it’s far from the only gaming company delivering negative dividend news this year. Blaming the COVID-19 pandemic, casino companies of all stripes, from regional players to more direct Sands rivals, such as MGM Resorts International (NYSE:MGM) and Wynn Resorts (NASDAQ:WYNN), cut or suspended payouts.

For LVS, there is some wiggle room in the aforementioned pact with Bank of Nova Scotia. Restarting the dividend could be in play if the operator maintains liquidity north of $1 billion “on a pro forma basis after giving effect to such dividend or distribution.”

In plain English, the company would need to have at least $1 billion in cash on hand after delivering a payout to investors.

Friends in High Places

Sands, which is widely viewed by analysts as having one of the strongest balance sheets in the industry, had $4.23 billion in cash at the end of the second quarter.

Some investors are comfortable with the notion that restoration of the dividend is a “when, not if” proposition. After all, Chairman and CEO Sheldon Adelson once famously said “Yay, dividends,” and he told analysts and investors he’d like to resume a dividend as soon as is practical.

It behooves his wallet to do that because he and his wife Miriam own almost 397 million LVS shares.