Las Vegas Sands Corp. (NYSE:LVS), the operator with some of the highest credit ratings in the gaming industry, is at risk of downgrade as the coronavirus pandemic leads to dramatically reduced visitation in Macau and Singapore – two vital markets for the company.
Moody’s Investors Service said it’s placing the ratings of LVS and Sands China Ltd. (SCL) – the company’s Macau operating unit – on review for possible downgrade, citing the impact the COVID-19 outbreak is having on gaming properties throughout Asia.
The review for downgrade is prompted by steep declines in visitation and gaming revenue in LVSC’s Macau and Singapore operations, as a result of the spread of the coronavirus that has restricted travel in the region, as well as expected reduced travel, consumer, and business activity in the US,” said Moody’s gaming analyst Adam McLaren in a recent note.
Macau, where LVS operates five integrated resorts, accounted for $2.24 billion of the company’s $3.51 billion in fourth-quarter revenue. During the last three months of 2019, Sands generated adjusted property earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.31 billion, with the five Macau venues and Singapore’s Marina Bay Sands combining for $1.26 billion of that sum.
By comparison, the Palazzo and Venetian on the Las Vegas Strip, which the company said yesterday are temporarily closing due to the coronavirus, combined for just $120 million in fourth-quarter EBITDA.
Entering 2020, LVS was the only US-based gaming company to carry investment-grade ratings from all three of the major credit ratings agencies – Moody’s, Fitch, and Standard & Poor’s (S&P). Currently, Moody’s has a Baa3 mark on the operator, which is toward the lower end of investment-grade territory.
Bonds with one of the three Baa ratings are “subject to moderate credit risk” and “may possess speculative characteristics,” according to Moody’s.
Like other operators, Sands was punished by investors after Macau’s government announced a mandatory 15-day gaming property closure last month aimed at preventing additional COVID-19 cases. That led to a peninsula-wide record monthly drop in gross gaming revenue (GGR) in February, a theme analysts widely expect is lingering into this month.
LVS stock is being swept in a broader market swoon that’s proving particularly punitive for gaming equities. The shares are off 40 percent this month and reside at the lowest levels since 2012 at this writing. However, Sands has some ballast that rival operators lack: a strong balance sheet. As of the end of 2019, LVS had $4.23 billion in cash on hand, according to the company.
The Moody’s review of LVS’s credit profile will touch on several factors, including the company’s liquidity position and the prospects of rebounding visits in Macau and Singapore.
“The review will focus on LVSC’s ability to preserve its liquidity during this period of significant earnings decline, the ramp of visitation and gaming revenue in Macau and Singapore, and the impact on future travel and visitation from the spread of the coronavirus globally, including in the United States,” said the ratings firm.
Moody’s did praise Sands for its strong cash position and “unused revolver capacity,” the latter of which has become an increasingly rare trait in the gaming business.