With Macau concessionaires struggling against the backdrop of another round of temporary casino closures at the hands of the coronavirus, Las Vegas Sands (NYSE:LVS) is moving to shore up liquidity at its Sands China unit.
The Las Vegas-based casino operator is loaning its Macau arm $1 billion, which is repayable on July 11, 2028. For the first two years of the loan, Sands China Ltd. (SCL) has the option of paying 5% cash interest or 6% in-kind interest per year. After that, only cash interest at a yearly rate of 5% will be applicable.
SCL’s obligations under the SCL Subordinated Loan will be subordinated unsecured obligations of SCL and will 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 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,” according to a filing with the Securities and Exchange Commission (SEC).
There are no prepayment penalties on the loan.
Sands not First Macau Operator to Make this Move
Macau concessionaires were under financial strain and that was before the recent announcement of a one-week closure of gaming venues there.
As such, US-based parents are moving to support units in the world’s largest casino hub and LVS wasn’t the first. Last month, Wynn Resorts (NASDAQ:WYNN) announced it is loaning its Wynn Macau arm $500 million. That stoked speculation among analysts that other companies would follow suit with some surmising it was simply a matter of time before LVS extended financing to Sands China.
Wynn is providing its Macau arm with the credit facility to support “potential future working capital and other funding needs, if necessary.” As of June 14, Las Vegas-based Wynn Resorts owns approximately 72% of the issued share capital of Wynn Macau.
To date, MGM Resorts International (NYSE:MGM) is the only one of the three US-based Macau concessionaires to not loan its China arm capital. The Bellagio operator owns almost 56% of MGM China.
Liquidity Concerns Remain
Before the announcement that Macau casinos will be shuttered for a week, analysts voiced concern about operators’ cash positions, burn rates and survivorability timelines.
“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,” said JPMorgan analysts DS Kim and Livy Lyu in a new report.
Owing to the halt operations at Macau casinos, analysts now believe July and August are essentially lost causes for concessionaires and that third-quarter gross gaming revenue (GGR) data will be dismal with the timeline to material recovery in the special administrative region (SAR) pushed off to early 2023.
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