Macau Drives Very Positive Credit Metrics For Casino Operators, Upgrades Seen and More To Follow (WYNN, LVS, MPEL)

The ratings agencies get bashed a lot, including by us, for being extremely late to the downgrade party.  The fault of one area is still not the fault of all.  It has been nearly impossible to ignore is the recent waves of positive credit rating developments from the ratings agencies on the casino operators.  Wynn Resorts Ltd. (NASDAQ: WYNN) was listed in last week’s top ten analyst calls of the week for its credit rating upgrade.  Now we are seeing some of the same secondary or tertiary action in Las Vegas Sands Corporation (NYSE: LVS).

Standard & Poor’s has now raised the corporate credit rating of Las Vegas Sands Corporation (NYSE: LVS) to “BB” from “BB-” and it has given it a stable outlook after the company’s plans to refinance its existing Macau credit facilities with up to $4.5 billion in new credit facilities.  The upgrade noted strong performance and a ‘meaningful cushion to a leverage threshold’ for a “BB” rating.

The Macau refinancing will add about $1.1 billion of additional debt that will be to pre-fund the Macau development.  What S&P sees is that Las Vegas Sands is expected to grow its EBITDA by 30% in 2011 from 2010 and that is expected to reduce its lease-adjusted leverage in turn.

The upgrade in Wynn Resorts Ltd. (NASDAQ: WYNN) just last week from S&P took its corporate credit rating to “BB+” from “BB” and with a “Positive” rating outlook.  The difference here is that Wynn is one notch (and perhaps one or two steps) ahead of Las Vegas Sands in gaining an “investment grade” from S&P.  During the recession, casinos were all either at-risk or in serious trouble.  What a difference a couple of years can make.  One of the positives noted in S&P’s upgrade of Wynn was its funding plan for its planned Cotai, Macau resort.

Macau, Macau, Macau… The underlying trend and benefits leading to these credit rating upgrades by S&P.  No wonder we are seeing analyst after analyst raise their price targets on Melco Crown Entertainment Ltd. (NASDAQ: MPEL).  Effectively, it is the Macau pure-play. At $11.21, Melco Crown’s 52-week trading range is $3.56 to $12.06 and its market cap is nearly $6 billion.  What matters for Melco Crown is that it is no longer in its speculative and development stage.  Not only is it generating revenues now, it is now running profitably.

Casinos traditionally have relied heavily on borrowing.  They used to all be in junk bonds and in credit facilities that were at much higher rates.  That was then, the zero interest rate environment is now.  Borrowing costs are going to be lower for Las Vegas Sands and for Wynn as a result, now we have to see if peers will get a related look as well.

Again, these are corporate credit rating moves rather than stock analysis moves.  Wynn trades around $132.00 today and its 52-week range is $73.12 to $151.73. Las Vegas Sands is up marginally after the upgrade at $39.75 and its 52-week trading range is $20.73 to $55.47.

Sheldon Adelson must be a far more happy man than he was during the peak of the recession and during the peak of the credit crisis. Ditto for Steve Wynn.

JON C. OGG