Las Vegas Sands confirms $1bn loan to Macau casino
Las Vegas Sands (LVS) recently announced a US$1 billion loan agreement with Sands China, repayable on July 11, 2028. The purpose of the loan is to support the company’s working capital and fund its general corporate purposes while Macau casinos continue to suffer under COVID-related restrictions.
Per the agreement, during the two years after its conclusion, SCL has the option of paying cash interest of 5% per annum or an in-kind interest of 6% per annum. After the period elapses, only a 5% cash interest was applicable.
Via a filing with the Securities and Exchange Commission (SEC), while the loan is still in effect. SCL was obligated to “be subordinated to all third party unsecured indebtedness and other obligations of every nature of SCL and its subsidiaries from time to time, including all Senior Notes issued by the SCL and the 2018 SCL Credit Facility as amended, restated, replaced (whether upon or after termination or otherwise, and whether with the original lenders or otherwise), refinanced, supplemented, modified or otherwise changed”.
The agreement further revealed that prepayment of the loan by Sands China was, in whole or part, without penalties. The SCL board endorsed the arrangement, indicating that it considered the loan terms reasonable and was made entirely for the benefit of the company and its shareholders. In a Stock Exchange filing in Hong Kong, SCL released a statement declaring that the agreement was a sign that showed the company and LVS’ certainty concerning the imminent growth potential present in the Macau market. They also revealed that the loan aided the company in bolstering its “balance sheet position and liquidity.”
SCL isn’t the first company in Macau to resort to taking loans due to the financial strain caused by the pandemic. Concessionaires in the China region previously faced a zero revenue environment, with most of the casinos closed down between July 11 to 18. It also had border restrictions with mainland China put in place for an undisclosed time.
As a result, US parent branches of the companies reached out to lend a hand to their Macau operators. Before the recent SCL and LVS loan agreement, Wynn Resorts announced its intention to loan Wynn Macau $500 million. According to analysts, this brought about a catalyst that led companies like LVS to lend a hand to their Macau branches. The Wynn Las Vegas branch provided its Macau office with enough funds to aid “potential future working capital and other funding needs, if necessary”. The head branch currently owns around 72% of the distributed share capital of its Macau subsidiary.
Ahead of the broadcast concerning Macau gaming revenue’s week-long shutdown, several analysts disclosed their distress about the burn rate, cash positions, and survivability timelines of the operators. In a recent report, analysts DS Kim, JP Morgan, and Livy Lyu calculated the possible liquidity runway of the regional operators.
The report read, “Our analysis suggests SJM and Sands have the shortest liquidity runway of nine months until March 2023, while other operators such as Wynn/MGM/Melco have 1.5 to 2 years of liquidity, with Galaxy being an outlier with 5 years of liquidity.”
Analysts also posited that due to the interruption of operations at the casinos, July and August wouldn’t do much for the Macau concessionaires. They claimed the gross gaming revenue (GGR) of the third quarter would be inadequate and set the time for possible material recovery for the special administrative region (SAR) further to early 2023.