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Best of Liz Benston

Gaming Guru

Liz Benston

Sands leader's exit comes amid tests

11 March 2009

LAS VEGAS, Nevada -- The messy departure of Las Vegas Sands Chief Operating Officer Bill Weidner, the culmination of a long-running fight between Weidner and Chief Executive Sheldon Adelson over the direction of the company, is just one of the many troubles facing the embattled casino giant in this recession.

Like most casino companies, Las Vegas Sands is generating enough cash to make its debt payments. Yet Sands, one of the most leveraged companies in an industry struggling to manage debts accumulated during the real estate bubble, is at risk of defaulting on bank loans even after Adelson and his family injected $1 billion a few months ago to keep creditors at bay.

To protect their investments, banks require companies to keep their debts at a manageable level relative to earnings. Sands is among four of the six largest Las Vegas casino companies at risk of tripping maximum leverage ratios set by the banks as casino earnings plummet.

Analysts say the company will need to sell assets in Macau to offset debts in Las Vegas, which has been harder hit by the economic downturn.

Although the company likely won't default on its bank loan in Las Vegas this year, some analysts say a default is likely, if not certain, in 2010, when banks reset the leverage ratio, unless the company can sell assets — a doubtful prospect with banks unwilling to finance risky projects. A default allows banks to collect on their debt, which could trigger a bankruptcy filing.

Stifel Nicolaus stock analyst Steven Wieczynski, among several analysts who have distanced themselves from the company in recent months, downgraded the company to a "hold," telling investors in a Feb. 12 research note, "We find it hard to recommend a stock where our thesis includes the potential for bankruptcy."

Earnings at the company's Venetian and Palazzo resorts fell 15 percent in the fourth quarter compared with the same period a year ago. Earnings in Macau were off 14 percent in the fourth quarter.

At an investor conference Tuesday in New York, Adelson said his company has several deep-pocket buyers interested in acquiring the company's retail malls at its recently built Venetian Macau and Four Seasons resorts in China.

"I think it's doable ... it's only a matter of price," Adelson said. "Asians have never seen anything like this. They're considered trophy properties."

Even if the malls aren't sold, Adelson said his company would be able to appease its banks by buying back some of its corporate bonds at cents on the dollar.

Some potential buyers are interested in becoming equity partners in existing properties as well as in the company's unfinished sites for future resorts in Macau, where they would finance and build the properties left unfinished when financing dried up.

With $2 billion in available cash, the company can avoid dumping properties at lower-than-hoped-for prices "if we hit our projections and buy back some bonds," Adelson said. To help in this goal, he said, the company has saved up to $470 million in expenses since last year.

Unlike some competitors, the company won't go back to its banks to negotiate waivers on its leverage requirements or hire restructuring firms because it has other options, Adelson said.

Some experts say those options depend on a market rebound, as financing is scarce and investors who appreciate the company's long-term prospects are wary of short-term economic conditions.

Joe Fath, a portfolio manager with T. Rowe Price Associates, said the company is "tapped out" with banks and will have a tougher time selling Macau assets now that Weidner — a key ambassador there — has quit.

If the company sells any Macau properties, most of that money would have to go toward paying debts in Macau before the money could be used in Las Vegas, as the resorts here were financed separately, said Fath, who unloaded his stake in Las Vegas Sands months ago.

Last year, as the company was appointing a special committee of board members to resolve management "disputes," Weidner acknowledged that failure to line up financing for its unfinished projects before the markets soured amounted to a "monumental screw-up."

Weidner, Adelson's closest adviser, advocated for a more conservative approach to financing and served as a valuable go-between with Adelson, widely known as a combative, even off-putting boss, insiders say.

Weidner's skin had grown thick in his dealings with Adelson, especially after his boss criticized Weidner in a Las Vegas courtroom last year for mishandling a business arrangement with Chinese businessman Richard Suen — a lawsuit that may cost the company tens of millions of dollars. Their strained relationship more recently descended into shouting matches, insiders say, over money the company spent as a result of design decisions made by Adelson's wife, Miriam, and the control she has over those decisions, they say.

Though Adelson says Las Vegas Sands is in a better place with Weidner gone and Michael Leven, an experienced successor, in place, some observers wonder what will happen if Adelson's already powerful influence is left unchecked.

With characteristic bluntless, Adelson acknowledged — and dismissed — his many skeptics Tuesday.

"We believe what we say. Apparently, the market doesn't believe us," he said.