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Fitch Affirms Las Vegas Sands' IDR at 'BBB-'; Outlook Stable
July 7, 2017 / 2:45 PM / 5 months ago

Fitch Affirms Las Vegas Sands' IDR at 'BBB-'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, July 07 (Fitch) Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) of Las Vegas Sands Corp. (LVS) and all of its subsidiaries at 'BBB-'. The Rating Outlook is Stable. The subsidiaries affirmed include Las Vegas Sands, LLC (LVS LLC), Sands China, Ltd. (Sands China), VML US Finance, LLC (VML US), and Marina Bay Stands Pte. Ltd. (MBS). Fitch links all of the IDRs within the LVS corporate structure. A full list of rating actions follows at the end of this release. KEY RATING DRIVERS Investment-Grade Rationale: LVS' 'BBB-' IDR reflects the company's strong financial profile, which can comfortably withstand cyclical-related operating pressures in the context of the financial parameters consistent with an investment-grade IDR. Other key rating drivers include LVS' strong liquidity profile, including discretionary FCF; significant capacity to monetize noncore assets, and high-quality assets in attractive regulatory regimes. Leverage Within Thresholds: Fitch-calculated leverage metrics remain within Fitch's thresholds for a 'BBB-' IDR of 4x gross leverage and 3.5x net leverage and provide for some flexibility with respect to ramping up shareholder friendly activity or funding a major development such as an integrated resort (IR) in Japan. Fitch forecasts that gross leverage remains below 3x through the projection horizon. This assumes slight growth in dividends, $500 million in annual share repurchases, no asset sales and no major developments. Capital Allocation: Amid deterioration in Macau operations, LVS stopped share buybacks, reduced debt and decelerated dividend growth maintaining gross leverage at or below 3x. LVS' public gross leverage target is 2.5x-3.0x, per fourth-quarter 2015 earnings call. (Fitch-calculated leverage is about 0.5x higher compared to the company's methodology). Development Pipeline: With the Parisian complete, LVS is in position to start generating positive FCF, which can be applied to returning cash to shareholders or funding development capex. Fitch forecasts discretionary FCF (excluding development capex) in excess of $300 million. There are no imminent projects on the horizon although LVS is in a good position to bid on an IR license in Japan, for which the company said it is ready to invest $10 billion. Non-core Assets Provide Support: LVS' facilities include 2.5 million square feet of leasable retail space including approximately 600,000 in Singapore and 1.75 million square feet in Macau. Mall operating income for the LTM period ending March 31, 2017 is $545 million, which translates into $6.8 billion - $13.6 billion of contingent liquidity assuming 4%-8% capitalization rates. LVS has expressed interest in selling its Singapore retail and has a history of selling non-core assets. It sold 440,000 square feet of retail space in the Venetian Las Vegas for $766 million in 2004 and later sold another 400,000 square feet at the Palazzo for $295 million amid the last recession. Macau Recovery: Fitch projects LVS' Macau-segment EBITDA will grow 12% in 2017 driven by the ramp up at The Parisian and a marketwide recovery. These drivers will be partially offset by cannibalization on LVS' existing properties from The Parisian and other expansions in the market. Fitch projects Macau's gaming revenues will grow by 14% in 2017, with the growth being more skewed towards VIP. Fitch maintains a positive long-term outlook on Macau supported by the expanding middle class in China and the development of infrastructure in and around Macau, including the Hong Kong-Zhuhai-Macau Bridge DERIVATION SUMMARY LVS' 'BBB-' IDR reflects the company's conservatively managed balance sheet, strong liquidity, robust discretionary FCF and significant capacity to monetize non-core assets. LVS also maintains a strong business profile supported by high-quality assets in attractive regulatory regimes, which provides the company with one of the best global market exposure profiles in the industry. LVS' leverage metrics are strong for 'BBB-' IDR, but the ratings are somewhat constrained at this time by the potential for a large scale development in Japan and the 2022 expiration of the concession in Macau. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: --Revenues grow 10% in 2017, driven by the ramp up for the Parisian and the market-wide recovery in Macau. Afterwards, revenues grow 3%-4% per year with mid-single digit growth in Macau helping to boost more flat growth elsewhere. --EBITDA margins after corporate expense stable at about 35%. --No new debt or major developments (no Japan). Capex is in line with the company's public forecast ($500 million maintenance capex per year and development capex winding down through 2019). --Corporate level dividends growing at 2% per share per year and $500 million of share repurchases per year. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action --Maintaining gross and net leverage below 3.5x and 3.0x, respectively. --Should LVS obtain a license(s) to develop an integrated resort in Japan, greater clarity on project's return on investment prospects and funding strategy would help build support for an upgrade. Conditions that may limit rating upside include LVS moving forward with a project despite very restrictive operating conditions such as a foreigners-only policy and LVS being aggressive with shareholder friendly actions leading up to the heavier capex spending phase. --A renewal of the concession in Macau, which expires 2022, would also help build support for an upgrade. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action --Leverage exceeding 4x on a gross basis and 3.5x on a net basis for an extended period, likely driven by pursuing multiple large-scale projects at once or deviating from its articulated financial policies. LIQUIDITY LVS' liquidity is strong, with $1.6 billion in excess cash net of $400 million in estimated cage cash. LVS also has $3.3 billion of revolver availability for total $4.9 billion of available liquidity. Maturities are manageable. The Singapore facility's amortization starts to ramp up in 2018 with $214 million due that year and $1.1 billion in 2019. The Macau facility amortizes largely 2020-2022, just prior to the Macau gaming concession expiration. Melco Resorts & Entertainment and SJM Holdings, two Macau concession holders, recently completed financings with maturities extending beyond their respective concession expirations, which alleviate to a degree concerns regarding Macau operators' ability to refinance past 2022. LVS has no large scale development capex underway. Fitch believes there is a good chance that LVS wins a license bid to develop a large scale integrated resort (IR) in Japan. LVS stated that it may spend $10 billion on the resort should it win a license. Japan lawmakers fist need to pass a bill outlining more detailed regulations, and Fitch estimates that the license RFP process will not start until 2018 at the earliest with heavier capex spending not starting until 2020 or 2021. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings: Las Vegas Sands Corp. --IDR at 'BBB-'; Outlook Stable. Las Vegas Sands LLC --IDR at 'BBB-'; Outlook Stable; --Senior secured credit facility at 'BBB'. Sands China Ltd. (Sands China) --IDR at 'BBB-'; Outlook Stable. VML US Finance LLC (VML US) --IDR at 'BBB-'; Outlook Stable; --Senior secured credit facility at 'BBB'. Marina Bay Sands Pte. Ltd. (MBS) --IDR at 'BBB-'; Outlook Stable; --Senior secured credit facility at 'BBB. Contact: Primary Analyst Alex Bumazhny, CFA Senior Director +1-212-908-9179 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Colin Mansfield, CFA Associate Director +1-212-908-0899 Committee Chairperson Michael Paladino, CFA Managing Director +1-212-908-9113 Summary of Financial Statement Adjustments Leverage: Fitch subtracts distributions to minority holders of non-wholly owned consolidated subsidiaries from EBITDA for calculating leverage. Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: Additional information is available on For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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