On Wednesday, Las Vegas Sands (NYSE:LVS) announced the sale of the Venetian Resort and Sands Expo and Convention Center on the Strip for $6.25 billion, effectively eliminating, for now at least, its US portfolio.
Private equity firm Apollo Global Management is acquiring the operating rights to the Strip venues while gaming real estate investment trust (REIT) VICI Properties is purchasing the property assets. Sell-side equity analysts broadly approve of the move by LVS, but that uniformity doesn’t extend to two of three major credit ratings agencies.
The day after the announcement, Fitch Ratings and Moody’s Investors Service issued differing views on the gaming company’s decision to jettison the properties in the city with which it shares a name.
Fitch sees the transaction as a slight credit negative. Positively, it provides LVS with additional liquidity and improves leverage on a net consolidated basis,” said the research firm. “Negatively, the asset sale reduces LVS’ contingent liquidity via having an ability to encumber its Las Vegas assets. The transaction also increases the gross leverage in near-to-medium term, marginally reduces diversification and raises some uncertainty with respect to the ultimate use of proceeds.”
Both credit raters have the lowest possible investment grades on the integrated resort operator.
Negative Outlook, But Some Positives, Too
Fitch has a “negative” outlook on LVS’ BBB- credit rating, citing weak operating conditions in Macau and Singapore – the company’s remaining markets.
The research firm says those regions, which accounted for 91 percent of the operator’s earnings before, interest, taxes, deprecation and amortization in 2019, are unlikely to fully recover from the effects of the coronavirus pandemic prior to 2023. Equity analysts covering LVS widely believe at least a portion of the proceeds from the Las Vegas sales will be allocated to Macau and Singapore properties. Even with the negative outlook, Fitch sees some positives.
“The total coverage of the U.S. debt by the residual equity of the Asian subsidiaries, as well as the royalty fees paid to the parent by the Asian subsidiaries, remains robust pro forma for the transactions,” said the research firm. “In addition, cash proceeds will be primarily used to invest in the existing or new subsidiaries, which should further expand the equity value accruing to the parent.”
Moody’s More Bullish
Moody’s called the decision to part with Sands Convention Center and the Venetian a “modest credit positive.” That ratings agency also has a “negative” outlook on Sands’ credit profile.
The research firm adds the transaction gives LVS “significant additional capital, further enhancing liquidity while providing flexibility to continue to reinvest in Macau and Singapore, as well as pursue additional growth opportunities and debt reduction.”
Moody’s has a Baa3 rating Sands. US equity analysts believe it’s possible the operator could use some of the sale cash to partially restore a dividend that was suspended last year, to pursue new domestic projects in New York or Texas and perhaps mull acquisitions.
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