S&P Global Ratings has downgraded Las Vegas Sands Corp. to junk, citing a slower recovery in the Macau gaming market after omicron cases brought a fresh round of business shutdowns.
S&P now rates the company BB+, one step below investment grade, according to a report Wednesday. The gaming company is still rated high-grade by Moody’s Investors Service and Fitch Ratings, which means one of those graders would also need to cut Las Vegas Sands’ ratings for its debt to fall out of investment-grade bond indexes that are widely tracked by large mutual funds and exchange-traded funds.
The gaming industry has struggled to recover from the Covid-19 pandemic as omicron cases spiked across the world in recent months, causing another round of shutdowns and restrictions on international travel which are just now beginning to lift. Las Vegas Sands owns and operates casino resorts in Macau and Singapore, and reported total debt of US$14.8 billion through Dec. 31, according to a filing.
The stock closed down 0.31% at US$47.61 in New York Wednesday. The company’s US$1.75 billion of 3.2% notes due 2024 fell 1.2 points to trade at about 99.5 cents on the dollar, according to Trace bond pricing data.
S&P expects the company to see significant stress on revenue and cash flow and placed the outlook on negative in preparation for potential future downgrades. The ratings company forecasts that the Macau market will see gross gaming revenues in 2022 at levels just 30% to 40% of the amount seen in 2019.
Here’s what Bloomberg Intelligence’s Jody K. Lurie says:
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“S&P’s downgrade of Las Vegas Sands’ (Baa3/BB+/BBB-) company rating to BB+ from BBB- is another sign that the Macau recovery is taking longer than expected, slowing the company’s deleveraging and taking a toll on credit quality.”
Las Vegas Sands’ financial situation will be helped by its ongoing sale of properties in Las Vegas to Apollo Global Management and Vici Properties for US$6.25 billion, which was announced in March of 2021. The Nevada Gaming Control Board recently recommended approval of the sale and is expected to consider final approval at its Feb. 17 meeting, according to S&P.
“We believe that the resumption of travel between Macau and Mainland China in 2022 will be slower than we initially anticipated amid rising Omicron cases and tightening junket activity,” S&P analysts Melissa Long and Ariel Silverberg wrote.
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While S&P said it believes the mass gaming segment will recover in the long-term thanks to China’s growing middle class, “the predictability of the recovery timeline is less certain because it’s difficult to assess if China will maintain its policies for zero tolerance of COVID-19 throughout the pandemic’s third year,” they wrote.
Moody’s rates Las Vegas Sands’ unsecured debt at Baa3, one step above junk, with a negative outlook. Fitch rates the company at BBB-, also one step above junk, and placed the company on negative watch in December.
Photo: Bloomberg
