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Sunday 9 November 2008
Fingers burnt on sure-fire Las Vegas Sands bet
“I’ve achieved the financial standing and the reputation on Wall Street to get all the money we need. We just raised US$5 billion a couple months ago and it’s become so routine that I wasn’t even at the closing.”
“I’ve achieved the financial standing and the reputation on Wall Street to get all the money we need. We just raised US$5 billion a couple months ago and it’s become so routine that I wasn’t even at the closing.”
Las Vegas Sands Corp chairman and majority shareholder Sheldon Adelson, August 27, 2007
No one could have foreseen the shocking reversal of fortune that the global credit crisis would spell for Las Vegas Sands Corp and its founder Sheldon Adelson, or the rising uncertainty that now confronts its massive wager on Macau.
Mr Adelson’s firm trademarked the phrase “Asia’s Las Vegas”, a fitting description of what he envisioned building on a strip of dirt between the islands of Taipa and Coloane - a US$12 billion, 20,000-room resort complex that banks were lining up to finance.
But the future of Mr Adelson’s vision for Macau - and of Las Vegas Sands itself - was thrown into jeopardy this week as the company confirmed it was struggling to service an US$8.8 billion mountain of debt and facing the risk of bankruptcy.
The prospect of Las Vegas Sands defaulting on its loans, which it is on track to do unless it can raise new capital before December 31, “raises substantial doubt about the company’s ability to continue as a going concern”, auditor PricewaterhouseCoopers said on Thursday in a filing by the casino developer to the US Securities and Exchange Commission.
The company also revealed that unless it can raise new funds it is likely to violate leverage covenants during the fourth quarter related to the US$5 billion in bank financing that its Las Vegas unit borrowed last year, back when credit flowed freely.
Las Vegas Sands faced the same covenant predicament in the third quarter, exceeding permitted ratios of debt to earnings before interest, tax, depreciation and amortisation, and in response Mr Adelson injected US$475 million from his own pocket in the form of a convertible note in order to avoid defaulting on the US loans.
Analysts expect that Mr Adelson, chairman, chief executive and 64 per cent shareholder in the company, will again come to the firm’s rescue.
“Sheldon still has considerable resources and we doubt he will sit on the sidelines and watch LVS go bankrupt,” Susquehanna Financial Group gaming analyst Robert LaFleur wrote in a research note. “The question is: ‘How much dry powder does he have, and what can he do?’”
With new bank financing likely to be either unavailable or prohibitively expensive, most market watchers are expecting a double-or-nothing bet from Mr Adelson.
Jefferies & Co analyst Lawrence Klatzkin notes that a shelf statement filed with the SEC on Thursday paves the way for the company to issue just about any type of security possible, and he reckons Mr Adelson might resort to purchasing another convertible note.
The company is scheduled to report its third-quarter results by Monday, when analysts expect it to announce details of the capital-raising programme.
In the worst-case scenario, failure to raise new funds would force the company to immediately suspend some or all of its global projects, most likely beginning with a US$3.3 billion, 6,400-room Cotai casino complex across the street from the Venetian Macau that still requires substantial funds for completion.
Still, that might not prevent the firm from defaulting on its US bank loans. Tripping leverage covenants would trigger cross-defaults on its bonds and financing agreements for aircraft, after which banks could begin calling in loans.
Another stop-gap measure such as September’s US$475 million cash injection will avert a near-term loan default, but is unlikely to resolve the longer-term financing issues.
The company’s interest payments have exceeded operating income in three of the past four quarters. Business volumes are slowing in Las Vegas and Macau due to falling US consumption and Beijing’s crackdown on mainland visits to Macau.
As a result, Las Vegas Sands will likely remain under pressure until debt markets open for business again or it can find buyers for non-core assets such as the residential units at the Four Seasons Macao or the shopping mall at the Venetian Macao.
The mere possibility of bankruptcy, however remote, represents a dramatic change in fortune for Mr Adelson, who only last year was ranked by Forbes as the third-richest man in America. Shares in Las Vegas Sands have fallen 92.38 per cent in the year to date and 94.56 per cent from their peak of US$144.56 in October of last year to close Thursday at US$7.85 apiece.
Mr Adelson’s net worth is largely tied up in Las Vegas Sands stock and has suffered a comparable decline, but he remains both wealthy and committed to his company.
“One of my closest friends says, ‘Sheldon, don’t worry about your height. You’re the tallest person I know when you stand on your wallet’,” Mr Adelson told investors in July. “I’m saying right now the company will not have liquidity problems. Need I say more?”
1 comment:
Fingers burnt on sure-fire Las Vegas Sands bet
Neil Gough
8 November 2008
“I’ve achieved the financial standing and the reputation on Wall Street to get all the money we need. We just raised US$5 billion a couple months ago and it’s become so routine that I wasn’t even at the closing.”
Las Vegas Sands Corp chairman and majority shareholder Sheldon Adelson, August 27, 2007
No one could have foreseen the shocking reversal of fortune that the global credit crisis would spell for Las Vegas Sands Corp and its founder Sheldon Adelson, or the rising uncertainty that now confronts its massive wager on Macau.
Mr Adelson’s firm trademarked the phrase “Asia’s Las Vegas”, a fitting description of what he envisioned building on a strip of dirt between the islands of Taipa and Coloane - a US$12 billion, 20,000-room resort complex that banks were lining up to finance.
But the future of Mr Adelson’s vision for Macau - and of Las Vegas Sands itself - was thrown into jeopardy this week as the company confirmed it was struggling to service an US$8.8 billion mountain of debt and facing the risk of bankruptcy.
The prospect of Las Vegas Sands defaulting on its loans, which it is on track to do unless it can raise new capital before December 31, “raises substantial doubt about the company’s ability to continue as a going concern”, auditor PricewaterhouseCoopers said on Thursday in a filing by the casino developer to the US Securities and Exchange Commission.
The company also revealed that unless it can raise new funds it is likely to violate leverage covenants during the fourth quarter related to the US$5 billion in bank financing that its Las Vegas unit borrowed last year, back when credit flowed freely.
Las Vegas Sands faced the same covenant predicament in the third quarter, exceeding permitted ratios of debt to earnings before interest, tax, depreciation and amortisation, and in response Mr Adelson injected US$475 million from his own pocket in the form of a convertible note in order to avoid defaulting on the US loans.
Analysts expect that Mr Adelson, chairman, chief executive and 64 per cent shareholder in the company, will again come to the firm’s rescue.
“Sheldon still has considerable resources and we doubt he will sit on the sidelines and watch LVS go bankrupt,” Susquehanna Financial Group gaming analyst Robert LaFleur wrote in a research note. “The question is: ‘How much dry powder does he have, and what can he do?’”
With new bank financing likely to be either unavailable or prohibitively expensive, most market watchers are expecting a double-or-nothing bet from Mr Adelson.
Jefferies & Co analyst Lawrence Klatzkin notes that a shelf statement filed with the SEC on Thursday paves the way for the company to issue just about any type of security possible, and he reckons Mr Adelson might resort to purchasing another convertible note.
The company is scheduled to report its third-quarter results by Monday, when analysts expect it to announce details of the capital-raising programme.
In the worst-case scenario, failure to raise new funds would force the company to immediately suspend some or all of its global projects, most likely beginning with a US$3.3 billion, 6,400-room Cotai casino complex across the street from the Venetian Macau that still requires substantial funds for completion.
Still, that might not prevent the firm from defaulting on its US bank loans. Tripping leverage covenants would trigger cross-defaults on its bonds and financing agreements for aircraft, after which banks could begin calling in loans.
Another stop-gap measure such as September’s US$475 million cash injection will avert a near-term loan default, but is unlikely to resolve the longer-term financing issues.
The company’s interest payments have exceeded operating income in three of the past four quarters. Business volumes are slowing in Las Vegas and Macau due to falling US consumption and Beijing’s crackdown on mainland visits to Macau.
As a result, Las Vegas Sands will likely remain under pressure until debt markets open for business again or it can find buyers for non-core assets such as the residential units at the Four Seasons Macao or the shopping mall at the Venetian Macao.
The mere possibility of bankruptcy, however remote, represents a dramatic change in fortune for Mr Adelson, who only last year was ranked by Forbes as the third-richest man in America. Shares in Las Vegas Sands have fallen 92.38 per cent in the year to date and 94.56 per cent from their peak of US$144.56 in October of last year to close Thursday at US$7.85 apiece.
Mr Adelson’s net worth is largely tied up in Las Vegas Sands stock and has suffered a comparable decline, but he remains both wealthy and committed to his company.
“One of my closest friends says, ‘Sheldon, don’t worry about your height. You’re the tallest person I know when you stand on your wallet’,” Mr Adelson told investors in July. “I’m saying right now the company will not have liquidity problems. Need I say more?”
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