Las Vegas Sands analysts see signs of improvement

By Steve Green

Wednesday, Dec. 2, 2009 | 8:49 a.m.

The financial outlook for Las Vegas Sands Corp. has improved somewhat thanks to the company's capital-raising program in Asia, but the growing supply of hotel rooms on the Las Vegas Strip continues to worry analysts.

Moody's Investors Service on Tuesday confirmed the speculative-grade ratings of some $7.7 billion of Las Vegas Sands' debt, including its B3 corporate family, probability of default and long-term debt ratings.

Moody's also raised the company's speculative grade liquidity rating one notch to SGL-2, but a negative ratings outlook was assigned.

Moody's analysts Keith Foley and Peter Abdill noted Las Vegas Sands in recent months completed billions of dollars in equity and debt financing deals, which Las Vegas Sands says total $5 billion.

That includes $3.1 billion associated with the initial public stock offering on the Hong Kong Stock Exchange, where the stock of the company's Asian unit started trading Monday. Besides the $2.5 billion listing, the company executed a $600 million pre-IPO bond financing deal.

Since August, these actions have improved Las Vegas Sands' "consolidated liquidity, leverage and ability to maintain (debt) covenant compliance," Moody's said.

Before completing its latest financings, the company reported $11.76 billion in total debt.

Another positive is an improved operating outlook for Macau, the Chinese gambling district where Las Vegas Sands collects most of its revenue and cash flow.

"In Macau, more friendly gaming policies from the local government, limited supply of new gaming tables in the near term and expectation of no further stringent enforcement by the Chinese government over tourist visitations to the enclave support stable growth for the sector's revenues," Moody's said in Tuesday's ratings report.

But on the other hand, Moody's said, the company faces "significant credit challenges."

"These challenges include Moody's expectation of further deterioration in the Las Vegas Strip gaming market, the continuation of a slower than expected ramp-up of Sands Bethlehem (Pennsylvania) and further debt-financed expansion in Macau," Moody's said.

The negative rating outlook also reflects risks related to the company's $5.4 billion Singapore gaming resort opening next year.

Moody's said the Singapore resort is "expected to be a key catalyst with respect to debt reduction over the next two years."

"Although Moody's recognizes the potential cash flow contribution from the Singapore casino, a delayed opening and/or slower than expected ramp-up would likely impact Las Vegas Sands' ability to reduce debt, and consequently, maintain its current ratings," Moody's said.

In a statement Monday, Las Vegas Sands Chairman and Chief Executive Sheldon Adelson highlighted the company's growth prospects in Macau -- the world's largest gaming market.

"With this public (stock) offering, in combination with our project financing efforts, we have already embarked on the initial stages of restarting the construction of our developments on the Cotai Strip and continuing the progress we have made in helping diversify Macau's economy and further establishing it as an international leisure and business destination," Adelson said.

In Las Vegas, Adelson and his executives have expressed a positive outlook as convention bookings and business meetings pick up for the company's Venetian and Palazzo resorts and its Sands Expo Center.

Analysts, however, are cautious and warn that the stubborn U.S. recession will make it difficult for Las Vegas hotel-casino operators to fill all their hotel rooms.

Visitation to Las Vegas fell 4.7 percent this year through September -- but the city's room count through September grew 2.5 percent from a year ago to 141,190.

That number is projected to grow to 149,156 by the end of the year and to 153,149 by the end of 2010.

Las Vegas Sands stock traded this morning at $16.44, up 32 cents or 2 percent.

In late October, the company said that for the third quarter it lost $123 million or 19 cents per share vs. a loss in the year-ago quarter of $32.2 million or 9 cents per share.

Revenue overall rose 3.2 percent to $1.114 billion. But revenue at the Venetian and the Palazzo in Las Vegas tumbled 26 percent to $228 million.