By: Las Vegas Now Staff
Casino operator Las Vegas Sands Corp. said Thursday that it is in jeopardy of missing certain financial covenant requirements and needs to raise more capital.
Shares of Las Vegas Sands plunged $3.63, or 31.1 percent, to $8.03 in morning trading. Over the past year, the stock has traded between $4.32 and $122.96.
In a filing with the Securities and Exchange Commission, Las Vegas Sands said it does not expect to comply with its maximum leverage ratio covenant for the fourth quarter which ends on Dec. 31, and potentially afterward. If it defaults, lenders would be able to exercise their rights under the agreements, including bringing financing maturity dates forward.
The defaults would “raise substantial doubt about the company's ability to continue as a going concern,” the filing stated. A going-concern qualification refers to a company's ability to continue to operate indefinitely. Las Vegas Sands was in a similar covenant predicament in the third quarter, but managed to escape default after Chairman and Chief Executive Sheldon Adelson and his wife, Miriam Adelson, loaned the company $475 million through a 6.5 percent convertible note due in 2013.
Late last month, the operator of the Venetian and Palazzo resorts in Las Vegas and the Sands Macao and the Venetian Macao in China said Adelson and his family also planned to take part in a capital raising program with an unnamed investment banking company.
Celeste Mellet Brown of Morgan Stanley said it remains to be seen what role Adelson will play in capital raising efforts. “If he does not (participate), the company may have a very difficult time getting the financing completed given its debt load, and the stock could decline significantly. If he does (or puts in all the capital himself), we think the stock will trade higher, even if a capital raise is dilutive,” she wrote in a client note.
In an October interview with The Associated Press, Adelson said that Las Vegas Sands was looking to raise $2 billion in debt financing from Asian banks to finish work on some Macau expansion projects. The casino mogul controls nearly 70-percent of Las Vegas Sands personally and through family trusts.
Analyst Jake Fuller of Thomas Weisel Partners LLC remained upbeat on the company. “No doubt there are serious balance sheet issues here, but we expect Las Vegas Sands to outline plans shortly and see the probability of resolution as high,” he said.
Fuller reaffirmed an “Overweight” rating and kept a $25 price target. Las Vegas Sands also filed a shelf registration with the SEC which gives it the option to raise capital through debt, stock or other financial vehicles.
The casino industry has been pressured as consumers continue to curb spending due to the ongoing housing slowdown, diminishing credit, rising food costs and recession fears. Boyd Gaming Corp. recently postponed work on its $4.8 billion Echelon resort in Las Vegas. The Las Vegas-based company also suspended its annual dividend.
MGM Mirage's default rating was downgraded by Fitch Ratings in October partly due to its difficulty paying for the $9.2 billion CityCenter complex in Las Vegas. The company has reached a deal with lenders to change the terms of $7 billion in debt.
Meanwhile Ameristar Casinos Inc. disclosed in an October SEC filing that it had arranged an interest rate swap with U.S. Bank National Association in order to change the annual interest rate on a credit agreement from floating to fixed.
(Copyright 2008 by The Associated Press. All Rights Reserved.)
