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$475 million for Sands: Loan fails to impress investors

2 October 2008

Las Vegas Sun

LAS VEGAS, Nevada -- Analysts on Wednesday applauded a $475 million cash infusion by Chairman Sheldon Adelson into his Las Vegas Sands Corp. to help the company meet its liquidity requirements and avoid triggering a $5 billion loan covenant.

Investors, however, were uncertain.

With Las Vegas Sands still seeking $3.3 billion to refinance an existing loan and needing more than $2 billion to complete the company's latest projects in Macau, speculators are cautious about the company.

Las Vegas Sands shares fell Wednesday on the New York Stock Exchange following news of Adelson's investment, in which he and his wife, Miriam Adelson, loaned the company $475 million through a 6.5 percent convertible note due in 2013. Las Vegas Sands closed down $4.79, or 13.27 percent, to finish the day at $31.32. More than 9 million shares were traded, almost twice the average daily volume.

Several Wall Street analysts, commenting to investors before the markets opened Wednesday, wrongly thought Adelson's move might help the company's stock price, which has lost more than 65 percent of its value since the beginning of the year.

"This news should alleviate some near-term investor concerns," Stifel Nicolaus gaming analyst Steven Wieczynski told investors. "Mr. Adelson continues to have long-term confidence in Las Vegas Sands. However, we continue to believe that Las Vegas Sands shares will be held in check until the remaining financing is in place."

In a filing with the Securities and Exchange Commission, Las Vegas Sands said Adelson's investment was made to meet the maximum leverage ratio required by lenders in the third quarter. The company's debt cannot exceed 7.5 times its cash flow. The cash infusion was necessary because of he decline in the company's stock this year.

The slumping Las Vegas economy and operating challenges in Macau have hurt revenues and cash flows at the company's four resorts: The Venetian and Palazzo in Las Vegas and the Sands and Venetian in Macau.

"No doubt slowing gaming revenues in Las Vegas and the longer ramp of the Palazzo (which opened in January) along with aggressive capital needs has negatively impacted leverage beyond prior expectations," Deutsche Bank gaming analyst Andrew Zarnett said in a note to investors. "Now with this new investment we believe Las Vegas Sands will remain in compliance with its third quarter, and most likely fourth quarter, maximum leverage ratio."

The ratio, which measures a firm's ability to meet financial obligations, looks at net debt in proportion to adjusted cash flow, described as earnings before interest, taxes, depreciation and amortization.

Las Vegas Sands said proceeds from the convertible notes offering were used to reduce the net debt and meet the leverage ratio requirements, among other measures.

Adelson's investment did not surprise analysts. During the company's quarterly earnings call in July, the 75-year-old billionaire pledged to put some of his personal wealth into the company if it became necessary.

Adelson's net worth has fallen by roughly $13 billion this year, taking the chairman and chief executive officer of Las Vegas Sands from third place on the Forbes 400 list of richest Americans to 15th place. Adelson is the majority shareholder of Las Vegas Sands, controlling almost 70 percent of the company personally and through his family trusts.

"My wallet's a little thinner," Adelson joked to The Wall Street Journal on Tuesday evening after the investment was announced.

The company is building a $600 million high-end condominium on the Strip in conjunction with St. Regis hotels, a $675 million resort in Pennsylvania, three more resorts on the Cotai Strip of Macau, and the $4 billion Marina Bay Sands in Singapore.

"By no means do we believe this interim solution will solve Las Vegas Sands' liquidity issues nor improve first-year return on investments in Macau," Macquarie Capital gaming analyst Joel Simkins told investors. "What we believe it will do is add a little flexibility, as the company hopes to strengthen momentum in Cotai and extend its pipeline growth in Singapore, Pennsylvania and Las Vegas."

Goldman Sachs gaming analyst Steve Kent said the move might help the company complete its financing for Macau. The company opened a $1 billion 360-room Four Seasons Macau on Aug. 28 adjacent to The Venetian Macau. Three additional Macau resorts the company is building, under the St. Regis, Sheraton and Shangri-La brands, will add 6,400 rooms to the Cotai Strip. In total, Las Vegas Sands plans to spend $12 billion to complete its Chinese gaming master plan.

"This could increase investor confidence that the company will move forward with raising debt in Macau for the development pipeline in that market," Kent told investors.

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