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Howard Stutz

Las Vegas Sands in danger of default?

7 November 2008

LAS VEGAS, Nevada -- The financial health of Las Vegas Sands Corp. took a sudden downturn Thursday when the casino operator told investors it was in danger of defaulting on some of its loans, raising the possibility the company could be facing a date in bankruptcy court.

Wall Street analysts, however, cautioned that the language in the company's filing with the Securities and Exchange Commission may have been ordered by auditors. Some speculated that Las Vegas Sands will come up with a capital plan to restore the faith of investors.

Shares of the company, traded on the New York Stock Exchange, fell more than 25 percent when the markets opened and continued sliding. Las Vegas Sands closed the day at $7.85, down 3.81, or 32.68 percent. More than 54 million shares of the company were traded, five times the average daily volume.

The company's stock was as high as $148.76 more than a year ago before a more than 90 percent decline. It had returned to double-digit prices in the past week until Thursday.

"No doubt, this development is adding to the unprecedented volatility in Las Vegas Sands stock," Susquehanna gaming analyst Robert LaFleur said in a research note. "We expect this volatility will continue until clarity of Las Vegas Sands' financial situation emerges."

In its filing, Las Vegas Sands said it was in jeopardy of missing certain financial covenant requirements and needs to raise more capital.

The company disclosed a letter from its auditor, PricewaterhouseCoopers, in which the accounting firm wrote that a default would raise "substantial doubt about the company's ability to continue as a going concern."

LaFleur called the filing language "scary," but he said it was "standard boiler-plate Sarbanes-Oxley."

Deutsche Bank gaming analyst Bill Lerner thought Las Vegas Sands' management would "imminently announce a specific capital plan and adjust various development projects."

The operator of The Venetian and Palazzo on the Strip and three properties in Macau had $8.8 billion in long-term debt at the end of June. The company said that it probably won't meet the requirements of some loans unless it cuts spending on development projects, boosts earnings on the Strip and raises capital.

Las Vegas Sands is building a $675 million casino in Pennsylvania and a $600 million condominium tower on the Strip. In Macau, the company plans to spend $12 billion on its Cotai Strip master-plan. Las Vegas Sands is also building a $4 billion resort in Singapore.

Spending declines on the Strip and restrictions on visas in Macau have stemmed the flow of cash into Las Vegas Sands.

In the SEC filing, Las Vegas Sands said if the company was not able to raise the necessary capital "we would need to immediately suspend portions, if not all, of our ongoing global development projects and consider other alternatives."

Las Vegas Sands had similar debt covenant problems at the end of September. However, Chairman and Chief Executive Officer Sheldon Adelson and his wife loaned the company $475 million through a 6.5 percent convertible note due in 2013.

Adelson, 75, the company's founder, controls almost 65 percent of Las Vegas Sands' outstanding shares personally and through family trusts.

Considered America's third-richest person earlier this year, Adeslon fell to 15th on the Forbes list after Las Vegas Sands' stock price lost more than 90 percent of its value. At the end of October, a New York compensation consulting firm estimated Adelson's net worth had fallen by more than $16.6 billion for the year.

Last month, the company said Adelson and his family had planned to take part in a capital-raising program with an unnamed investment banking company.

"Sheldon still has considerable resources and we doubt he will sit on the sidelines and watch Las Vegas Sands go bankrupt," LaFleur said. "The question is how much dry powder does he have, and what can he do?"

Morgan Stanley gaming analyst Celeste Mellet Brown said it remains to be seen what role Adelson will play in the 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," Brown said. "If he does (or puts in all the capital himself), we think the stock will trade higher, even if a capital raise is dilutive."

Jefferies & Co. gaming analyst Lawrence Klatzkin dismissed the filing as "no new information."

Las Vegas Sands also filed a shelf registration with the SEC that gives it the option to raise capital through debt, stock or other financial vehicles.