Shareholder Rewards Could Potentially Impact Sands’ Credit Rating

Published on: April 3, 2024, 04:32h.

Last updated on: April 3, 2024, 04:32h.

Las Vegas Sands’ (NYSE: LVS) efforts to reward shareholders through buybacks and dividends may impact the potential for a credit ratings upgrade, as noted by Moody’s Investors Service.

Marina Bay Sands, cheating, Tan Kian Yi, baccarat
Singapore’s iconic Marina Bay Sands. Operator Las Vegas Sands could experience credit rating constraints due to shareholder rewards, says Moody’s. (Image: STB)

While reaffirming a “Baa3” rating with a “stable” outlook on the casino operator, Moody’s anticipates Sands to continue its dividend payments and share repurchases, potentially acting as limitations on credit. The Baa3 classification is three levels into junk territory on the Moody’s ratings scale. LVS resumed its quarterly dividend last July, paying out $150 million to investors in the third and fourth quarters following its suspension at the start of the pandemic.

The stable outlook reflects our expectation that visitation and gaming revenues will continue to ramp up in 2024, enabling Las Vegas Sands to restore credit metrics to levels in line with our expectations for the Baa2 Sand China Ltd / Baa3 Las Vegas Sands senior unsecured ratings, including leverage in the low 3x range,” observed Moody’s.

Currently, Sands China doesn’t pay a dividend, making it one of three Macau operators not doing so, but analysts believe that company will be the next to rejoin the Macau dividend group. LVS also announced a $2 billion share repurchase program last October.

Expansion Could Also Hinder Sands Credit Rating

Moody’s highlighted that Sands is likely to continue maintaining sufficient liquidity, addressing upcoming debt maturities, and potentially reducing overall debt. However, successful pursuits of new projects could lead to increased leverage.

These projects include a New York City-area casino permit, a Texas integrated resort, and potential involvement in a Thailand casino if regulated gaming is approved in the country. The New York project is the most probable in the medium-term, but bidders may not know the outcome until late 2025.

Moody’s expressed concern that as LVS pursues “further and significant global casino resort development opportunities that will likely be funded largely with debt that could lead to temporary leveraging.”

Sands’ credit rating and outlook are supported by the “high quality, popularity, and favorable reputation” of the operator’s venues.

Sands Still Has Strong Cash Position

Sands isn’t using new debt to fund shareholder rewards, a positive factor in a high-interest rate environment. The company ended last year with $5.11 billion in unrestricted cash balances, indicating the ability to support buybacks and dividends.

Restarting the dividend was significant as Sands had a strong track record of payout growth before its suspension, making a credit downgrade in the near future less likely.

However, Moody’s cautioned that a credit rating downgrade could occur if Sands faces liquidity challenges or if the gaming company’s earnings recovery is delayed. Unexpected negative developments in Macau or a broader downturn in consumer cyclical could also trigger a downgrade.

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