Sands China Ltd., the operator of five Macau integrated resorts, is asking lenders to waive some financial covenants. The moves that would help the operator avert default if the Asia-Pacific gaming industry continues weakening against the backdrop of the coronavirus outbreak.
Specifically, Sands China is asking creditors to waive coverage and interest ratio provisions, effectively allowing the company to dodge default if it comes to that. The subsidiary of Las Vegas Sands (NYSE:LVS) is requesting that the waiver period be effective as of Jan. 1, 2020 and run through July 1, 2021.
In a letter to the Macau branch of Bank of China Ltd., the Venetian Macau operator requests that it receive waivers if its consolidated leverage and interest coverage ratios breach certain levels over the aforementioned period.
Pursuant to the Waiver Letter, the Agent and the lenders party to the Facility Agreement (a) waive the requirements for Sands China to comply with Clause 20.2 of the Facility Agreement, which requires Sands China to ensure (i) that the Consolidated Leverage Ratio (as defined in the Facility Agreement) as at the last day of any financial quarter does not exceed 4.00 to 1.00 and (ii) that the Consolidated Interest Coverage Ratio (as defined in the Facility Agreement) as at the last day of any financial quarter is greater than 2.50 to 1.00, in each case, for any fiscal period ending during the period beginning on, and including, January 1, 2020 and ending on, and including, July 1, 2021,” according to a copy of the letter obtained by Casino.org.
The gaming company also requests that it be given extensions, if needed, in supplying lenders with audited financial statements “for the financial year ended on 31 December 2019, to 30 April 2020, and the financial year ended on 31 December 2020 to 30 April 2021.”
Better to be Prepared
Sands China covenant waiver requests don’t necessarily imply the company is on shaky ground. Rather, it can be viewed as preparation for the potential of longer-than-expected weakness in Macau – the operator’s most important market.
In the fourth quarter of 2019, LVS generated $1.39 billion in adjusted property earnings before interest, taxes, depreciation and amortization (EBITDA) on revenue of $3.51 billion, of which $811 million in EBITDA and $2.24 billion were derived from Macau operations.
LVS is undoubtedly one of the sturdiest gaming companies, financially speaking. Despite dealing with a 15-day Macau closure last month and now a 30-day shuttering in Nevada, the operator has no plans to ask the federal government for financial assistance, and had $4.23 billion in cash on hand at the end of last year.
To put LVS’s cash position into context, it exceeds the $3.37 billion market capitalization of rival Caesars Entertainment (NASDAQ:CZR).
Why Lenders Might Want to Play Ball
It may behoove Sands China’s lenders to cooperate with the operator’s waiver requests for multiple reasons, not the least of which is the fact that the company may not breach the covenants at all.
Second, corporate debt defaults almost always result in lenders walking away with pennies on the dollar of the original loan, meaning there’s financial incentive for banks to help borrowers – particularly financially sound ones such as LVS – to avert default.