"Highly leveraged casinos were among the first to be locked out of credit markets last year," says Elliott Gue, noting that one company that suffered greatly was Las Vegas Sands (NYSE: LVS).
Now, however, he see "strong propsects" for a recovery in the casino operator's future; he is particularly optimistic on the firm's Asian projects. Here's his review from Personal Finance.
"The economic downturn meant consumers reined in spending on leisure travel and gambling. Meanwhile, declining real estate prices near Las Vegas hit the local economy hard. Gaming revenues declined, and occupancy at Sin City's massive hotels plummeted.
"Las Vegas Sands, best-known for The Venetian resort, certainly wasn't been immune to the carnage. The stock slipped from highs well over 100 in 2007 to less than 2 earlier this year.
"Las Vegas Sands carries a B- rating from Standard & Poor's, well into junk territory. As recently as February the company's debt traded at 35 cents on the dollar and offered a yield-to-maturity that exceeded 32%; at that rate, no company could afford to borrow money to invest profitably.
"But the price of that bond has soared and the yield is back below 10%, reflecting investors' renewed appetite for high-yield debt.
"In September Las Vegas Sands was able to amend its credit facility to reduce the risk that it would breach debt covenants this year. And it also sold $600 million in new bonds and announced plans for an initial public offering (IPO) for a stake in its Macau operations to raise even more cash.
"There are strong prospects for an operational recovery as well. The Venetian has seen better occupancy metrics than its peers thanks to the massive adjacent conference facility.
"More exciting are the company's Asian properties, which will ultimately account for more of Sand's earnings than Vegas.
"The company is one of only six that have been granted gaming concessions in the Chinese gambling destination of Macau. The firm already has three properties there--the Venetian Macau, Sands Macau and The Four Seasons.
"Sands controls additional plots on which it began construction of new casinos, but these projects stopped amid the credit freeze last year. With new financing flowing, look for the company to resume construction.
"Gaming revenues in Macau are bouncing back quickly, soaring 17% in August over year-ago levels to a new monthly record. The jump reflects an easing in visa restrictions for Chinese gamers and the quick snap-back in the Chinese economy.
"Outside Macau, Sands is targeting Singapore; its Marina Sands development is due to open early next year. Singapore recently legalized gaming and promises to be a popular destination for Asian gamers with rapidly growing incomes. Buy Las Vegas Sands under 18."
