NEW YORK–(BUSINESS WIRE)–
Fitch Ratings has assigned a ‘BBB-’ rating to VML US Finance LLC’s (VUF) amended $4.4 billion senior secured credit facility, which includes a $2.4 billion term loan and a $2 billion revolver. Fitch’s existing Issuer Default Ratings (IDRs) for VUF and its indirect parent companies, Sands China Ltd (Sands China), Las Vegas Sands LLC (LVS LLC) and Las Vegas Sands Corp (LVSC) are ‘BB+’. The Rating Outlook is Positive.
The credit facility is guaranteed by VUF and Venetian Macau Limited (VML), Sands China’s main operating subsidiary and a gaming concession holder in Macau. VML’s concession expires in June 2022, full two years after the credit facility’s maturity, unless extended by Macau’s government. VML owns Venetian Macao, Sands Cotai Central (SCC), Four Seasons Macao, Sands Macao and the Parisian project. The collateral pledged for the facility has not been made public, but Fitch expects the collateral to include all of the assets mentioned above with the possible exception of The Parisian.
KEY RATING DRIVERS
The new facility improves VML’s liquidity by pushing out its maturity wall from 2016 to 2020 and increasing the revolver capacity from $500 million to $2 billion. However, $1.18 billion is available pro forma for VML drawing on the revolver to paydown $820 million of the non-extending term loans. VML’s liquidity as of Dec. 31, 2013 pro forma for the increased revolver and net of cage cash (estimated at $200 million by Fitch) is roughly $3.9 billion. Along with free cash flow (FCF), liquidity is sufficient to meet VML’s capital development plans while maintaining the company’s ramp-up in shareholder friendly initiatives.
Fitch estimates VML’s run-rate discretionary FCF at slightly in excess of $2.5 billion. Sands China’s 2013 year-end dividends annualizes to $1.8 billion. Sands China also paid a special dividend of $800 million in 2013. The company projects that it will spend $1.25 billion – $1.50 billion on development capital expenditures in Macau for 2014 ($825 million on The Parisian) and $1.7 billion in 2015 ($1.15 billion on The Parisian). The Parisian is slated to open late 2015 with no major capital plans past that at VML.
The refinancing is leverage neutral with gross leverage remaining at around 1.4x.
Fitch projects 12% gaming revenue growth for 2014 in Macau, which may prove to be conservative given that revenues have grown 20% year-to-date through March. The 12% growth forecast is driven by 20% growth in the mass market while VIP growth will generally be in line with Chinese GDP growth. Growth will be supported by the growing Chinese economy (Fitch projects 7.3% annual GDP growth in 2014 and 7% in 2015); the improved infrastructure in and around Macau (e.g. a new ferry terminal connecting to Cotai will open in mid-2014); continued ramp up of LVSC’s SCC; and the development on Hengqin Island adjacent to Macau.
LVSC is best positioned to capitalize on the mass market growth, with approximately 1 million square feet of gaming space. This gaming space, plus an extensive complement of amenities and hotel rooms, allows LVS to freely adjust to the demands of the market.
The ‘BBB-’ rating on the credit facility is one notch above VUF’s IDR and reflects the meaningful overcollateralization of the credit facility by VML’s assets, which generated $2.9 billion of EBITDA in 2013.
Uncertainty with respect to VML’s ability to extend its gaming concession past 2022 is a risk albeit a remote one. The Macau government said that it may begin discussions on extending concessions in 2015. Positively, the government indicated that it has no interest in increasing the number of concession holders past six.
Main Drivers for the ‘BB+’ IDR
The ‘BB+’ IDR is linked to LVSC’s and its subsidiaries’ IDRs and reflects LVSC’s strong financial profile supported by manageable debt levels, significant cash balances and robust discretionary free cash flow (FCF). LVS also maintains a strong business position supported by high quality assets in attractive regulatory regimes, which provides the company with the best global market exposure in the industry.
The ratings also consider LVSC’s history of being an aggressive developer of large-scale gaming-centric integrated resorts, lack of a track record with respect to maintaining to stated financial policies, and the pending Department of Justice (DOJ) and Securities and Exchange Commission (SEC) investigations.
The Positive Outlook reflects the solid ramp up of SCC; Fitch’s favorable outlook for Macau; LVSC’s significant unencumbered non-core pool of assets; and LVSC’s relatively modest capex pipeline with no other new integrated resort projects aside from The Parisian being shovel-ready for at least another two years (e.g. South Korea and/or Japan) with the Spain plans now being canceled.
The Positive Outlook also takes into account the company’s recently articulated gross leverage target range of 2x-3.5x before incurring additional debt related to future development of integrated resorts. Fitch believes that this range can potentially support an investment grade IDR given LVSC’s business risk. Fitch calculates LVSC’s consolidated gross leverage for the year-end 2013 at 2.5x (net of cash based corporate expenses and income attributable to minority interest) versus Fitch’s 4x threshold for LVSC for ‘BBB-’ IDR of 4.0x gross leverage. There is about 0.5x difference in Fitch’s calculation of gross leverage relative to the company’s.
When considering an upgrade of LVSC’s IDR to ‘BBB-’ Fitch will take into account cushion in the gross leverage ratio relative to Fitch’s 4.0x threshold. An upgrade of the IDR to ‘BBB-’ would be possible even with a thin cushion relative to the 4.0x leverage threshold possibly after LVSC incurs debt to fund a leveraging shareholder friendly transaction. Fitch will factor into its upgrade decision the timing and scope of potential upcoming capital projects as well as LVSC’s ability and perceived willingness to deleverage and/or build liquidity in anticipation of large scale capital plans.
RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
–Maintaining leverage below 4x on a gross basis and 3x on a net basis for an extended period with some cushion relative to potential new development opportunities;
–Keeping to its articulated financial policies including maintaining gross leverage at below 3.5x before accounting for the development of new integrated resorts;
–Favorable resolution of inquiries and lawsuits related to governance matters discussed above.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
–Leverage exceeding 5x on a gross basis and 4x on a net basis for an extended period, likely driven by pursuing multiple largescale projects at once;
–Deviating from to its articulated financial policies including contributing at least 25% equity towards projects;
—Loss of a license/concession as a result of inquiries related to governance matters discussed above.
Fitch rates LVSC and its subsidiaries as follows:
Las Vegas Sands Corp.
–IDR ‘BB+’, Outlook Positive.
Las Vegas Sands LLC
–IDR ‘BB+’, Outlook Positive;
–US$1.25 billion secured revolving credit facility ‘BBB-’;
–US$2.25 billion secured term loan B ‘BBB-’.
Sands China Ltd. (Sands China)
–IDR ‘BB+’, Outlook Positive.
VML US Finance LLC (VML US)
–IDR ‘BB+’, Outlook Positive;
–US$500 million Macao secured revolving credit facility ‘BBB-’;
–US$3.2 billion Macao secured term loan ‘BBB-’.
Marina Bay Sands Pte. Ltd. (MBS)
–IDR ‘BB+’, Outlook Positive;
–SGD 500 million Singapore secured revolving credit facility ‘BBB-’;
–SGD 4.6 billion Singapore secured term loan ‘BBB-’.
Additional information is available at ‘www.fitchratings.com‘.
Applicable Criteria and Related Research:
–’Fitch: LVS’s Pullout from Spain Reinforces Positive Outlook; IDR Affirmed at ‘BB+’ (Dec. 19, 2013);
–’Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage’ (Aug. 5, 2013);
–’Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers’ (Nov. 19, 2013);
–’U.S. Leveraged Finance Spotlight — Las Vegas Sands Corp.’ (July 11, 2013);
–’2014 Outlook: U.S. Gaming (Deleveraging Potential)’ (Dec. 16, 2013);
–’2014 Outlook: Asia Pacific Gaming (Stable Despite Rising Competition)’ (Dec. 16, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=721836
U.S. Leveraged Finance Spotlight — Las Vegas Sands Corp.
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=703828
2014 Outlook: U.S. Gaming (Deleveraging Potential)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726622
2014 Outlook: Asia-Pacific Gaming
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725156
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=825813
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Contact:
Fitch Ratings
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Fitch Rates Sands China"s Amended $4.4B VML Credit Facility "BBB-"
