The strong rebound in the Macau market is believed to be a significant driver of Las Vegas Sands‘ overall credit improvement, according to Fitch.
The rating agency estimates that mass market baccarat has almost fully recovered to 2019 levels, particularly in the premium mass, which is the company’s target market. Mass market baccarat reached 91 percent of full-year 2019 levels, and fourth-quarter 2023 levels exceeded those of the fourth quarter of 2019.
Despite the rapid growth in gaming revenues, Fitch points out that visitation and airline capacity remain below 2019 levels. The rebound in these metrics should provide another source of further revenue growth over the near term. Additionally, capital improvements, particularly at The Londoner, should further drive long-term growth for Las Vegas Sands (LVS).
In a Friday rating action commentary, Fitch also notes that there is anecdotal evidence suggesting the Macau mass market is becoming more promotional due to the reduction in VIP business resulting from regulatory changes. However, LVS has not been materially affected by this, given its strong quality of room product and non-gaming amenities.
Fitch concludes that the expectation of further market improvement in Macau and continued strong performance in Singapore should ensure credit metrics remain at current levels or even show further improvement.
Fitch indicates that the improvement in EBITDA leverage includes assumptions for the common dividend at $0.20 quarterly (estimated approximately $600 million annually), stock repurchases, and the resumption of a Sands China distribution in 2026.
In May last year, Macau gaming operator Sands China finalized a facility agreement worth $2.49 billion with lenders, which includes an 18-month extension of their dividend-restriction period. The dividend restriction period, initially set to end on July 31st, 2023, is now extended to January 1st, 2025.
Singapore
In Singapore, LVS is achieving record levels of mass gaming revenue. Overall, the monthly passenger volume at the airport and aircraft seat capacity from China are still below pre-pandemic levels but have recovered to 87 percent of the 2019 capacity by December 2023.
‘The overall performance at Marina Bay Sands (MBS) increased despite a major room renovation at the complex, which temporarily took a significant number of rooms out of inventory. Phase I of the room refurbishment is mostly completed and Phase II is expected to be finished between 2024 and 2025. The completion of both phases will result in fewer rooms but a higher-quality product to attract more affluent customers.’
NYC casino license
The same note also addresses the funding pressure related to the potential New York City casino license bid. LVS faces a potentially substantial capital program, especially if it secures a New York City license. However, Fitch believes the company can meet this funding requirement without materially affecting the balance sheet.
‘The timeframe for developing the casino project is not considered a key rating driver. If LVS secures the license, it will be required to pay a $500 million licensing fee.’ Fitch notes that LVS has a strong track record in developing large casino and entertainment projects.
