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Howard Stutz

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Macau operations help credit profiles of Las Vegas Sands, Wynn Resorts

12 Dec 2013

By Howard Stutz
LAS VEGAS -- Compared with the competition, Las Vegas Sands Corp.’s outstanding long-term debt of just less than $10 billion seems manageable, which led Wall Street to praise the company’s plans to restructure a portion of the obligations.

The difference between Las Vegas Sands’ debt of $9.76 billion and the industry-high $23.7 billion owed by Caesars Entertainment Corp. is more than just $14 billion.

Wells Fargo Securities gaming analyst Dennis Farrell Jr., who specializes in high-yield bonds, said Las Vegas Sands and Wynn Resorts, Limited have the best credit profiles of any of the major casino operators, primarily because of their wholly owned Macau operations.

Both companies have multiple resorts in the market that has already produced $40.9 billion in gaming revenues this year.

“Their success in Asia has allowed the companies to return cash to shareholders in the form of dividends and stock repurchases,” Farrell said.

Las Vegas Sands’ planned moves to improve its debt profile provide additional financial flexibility to participate in gaming expansion opportunities.

“A business can lever an entity at a lower cost for capital,” Farrell said. “It magnifies the return. That’s why we see companies use leverage. Sands and Wynn are both in a very good financial position.”

This past summer, Las Vegas Sands Chairman Sheldon Adelson criticized his competition on the Strip, telling investors that properties operated by Caesars and MGM Resorts International were driving hotel room rates lower because of their high debt loads.

“I don’t necessarily blame them,” Adelson said during the company’s second-quarter earnings call in August. “I suppose if I were in that position, I might do the same thing.”

Caesars doesn’t own a casino in Macau. MGM Resorts, which has $13.03 billion in long-term debt, is the majority owner of just one Macau resort. Wynn Resorts’ total debt is $6.2 billion.

Las Vegas Sands, Wynn Resorts and MGM Resorts are all building new hotel-casino complexes on Macau’s Cotai Strip.

Farrell said casino companies have continued to work to improve their debt profiles.

Caesars has restructured portions of its debt over the past few years, most recently extending maturity dates of $4 billion in expiring debt out to 2020. MGM Resorts has also extended the maturity dates of its debt obligations over the past few years.

Now, Las Vegas Sands is following suit.

The casino operator didn’t provide much detail when it announced the refinancing plans Dec. 2. It declined to comment beyond a brief statement that the restructuring would extend maturity dates remove certain financial covenants.

Bloomberg News, citing unnamed sources, said Las Vegas Sands was using a consortium of banks to restructure about $3.25 billion of the obligations, much of which come due early next year.

Farrell said the debt is covered by the company’s Venetian and Palazzo hotel-casinos on the Strip and Sands Bethlehem in Pennsylvania.

Companies have different reasons for taking on debt. Caesars’ debt load came about after the company was taken private by two private equity firms in a $30.7 billion buyout in 2008.

Farrell said the company’s “timing was compromised” because the recession hit, driving down gaming company values. Caesars has been able to raise capital by leveraging pieces of the company’s business. The most recent debt restructurings were backed by the under-construction Linq project and the Octavius Tower at Caesars Palace.

“Caesars is doing everything it can to raise more cash, push out maturities and try to weather the storm,” Farrell said.

Meanwhile, additional improvements to Las Vegas Sands’ already well-cushioned financial profile might help as the casino operator looks toward additional foreign expansion. The company has targeted potential in other Asian markets (Japan and South Korea) and Europe (Spain).

In the United States, Las Vegas Sands was involved in casino expansion talks in South Florida in 2012 and has factored into recent discussions surrounding a potential casino in New York City.

Farrell told investors recently that companies with both Macau and Strip resorts are best positioned for 2014.

“Destination gaming markets such as Las Vegas and Macau should continue to benefit from the global wealth effect, corporate conventions, and secular growth within Asian economies,” Farrell said. “We believe the domestic regional gaming industry will see revenue growth of 1 percent to 2 percent in 2014 due to a combination of higher discretionary spend and lower industry supply.”

Farrell said he was concerned that the leisure travel segment will remain soft, suppressing any significant improvement in net gaming revenues.

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