Las Vegas Sands (NYSE: LVS) continues to hold an investment-grade rating from Fitch Ratings, with its credit rating reaffirmed at “BBB-” — the lowest investment-grade mark — and a “stable” outlook.
Key Factors Behind the Rating
In a report released last Friday, Fitch cited the operator’s free cash flow prospects and the strength of Marina Bay Sands in Singapore as key factors supporting the investment-grade rating. However, the report also mentioned concerns over the slow recovery in Macau, where Sands China operates five casino hotels.
“The company’s strengths include its scale, competitive positions, and robust free cash flow, offset by a heavy capital program and potential Chinese economic weakness,” said Fitch regarding Sands.
Recent Improvements and Future Prospects
Sands is almost two years removed from having its investment-grade ratings restored after being downgraded to junk status shortly after the onset of the coronavirus pandemic. The company’s solid credit grade is supported by an improving earnings before interest, taxes, depreciation, and amortization (EBITDA) outlook, positioning the company to reduce leverage. Fitch upgraded Sands to investment grade in February 2024.
Reducing Leverage
Fitch forecast Sands will achieve EBITDA leverage of 3.5x, noting that “if leverage sustainably falls below this level,” a ratings upgrade is possible.
“LVS’s liquidity is strong, with $4.2 billion in cash and significant credit facility availability. Key risks include sustained high leverage and liquidity deterioration,” added Fitch.
Fitch analysts highlighted Sands’ prudent balance sheet management, which solidifies the higher quality credit mark while positioning the company for a potential upgrade in the future. Sands is also recognized for effectively communicating its leverage objectives to investors.
Share Buybacks and Dividend Growth
The ratings agency also noted that while Sands is repurchasing its stock — which analysts view as deeply undervalued — and looking to grow its dividend, free cash flow generation should be sufficient to support these shareholder rewards. Fitch added that Sands has the cash on hand to service Sands China’s debt due later this year.
Demonstrating Creditworthiness
In a testament to the operator’s creditworthiness and its ability to secure capital, Sands recently obtained $9 billion in financing for enhancements and expansion at Marina Bay Sands. This marks one of the largest corporate credit extensions in Singapore’s history.
Fitch mentioned that factors favoring a potential upgrade “include improved leverage and increased geographic diversification.”
Geographic Diversification
Sands currently operates six integrated resorts — five in Macau and Marina Bay Sands. Future geographic diversification efforts may include obtaining a New York City-area gaming license, the potential approval of casino gaming in Texas, and a possible bid for a Thailand casino resort.
