Among the vaguely Leninist plan's bulletpoints are the following:
(i) achieve increased levels of Adjusted EBITDA at our Las Vegas and Macao properties, primarily through aggressive cost-cutting measures;
(ii) successfully complete the sale of certain non-core assets (e.g. Four Seasons Apartments or the malls at The Venetian Macao and Four Seasons Macao), a portion of the proceeds from which would be used to repay our debt;
(iii) elect to contribute up to $50 million and $20 million of cash on hand to our Las Vegas and Macao operations, respectively, on a bi-quarterly basis (such contributions having the effect of increasing Adjusted EBITDA by the corresponding amount during the applicable quarter for purposes of calculating maximum leverage ratio (the “EBITDA true-up”)); or
(iv) execute a debt reduction plan. If the aforementioned measures are not sufficient to fund our revised development plan and maintain compliance with our financial covenants, we may also need to execute on some, or a combination, of the following measures:
(i) further decrease the rate of spending on our global development projects;
(ii) obtain additional financing at our parent company level, the proceeds from which could be used to reduce or repay debt in Las Vegas and/or Macao;
(iii) consider other asset sales;
(iv) elect to delay payment of dividends on the Preferred Stock; or
(v) seek waivers or amendments under our Las Vegas and Macao credit facilities; however, there can be no assurance that we will be able to obtain such waivers or amendments.
The gambling company's nine commandments end with the following Kool aid: "Management believes that successful execution of some combination of the above measures will be sufficient for us to fund our commitments and maintain compliance with our financial covenants throughout 2009."
The reason LVS should be very nervous is that its maximum leverage covenant drops from 7.5x on Dec. 31, 2008 to 7x for the next 2 quarters, and 6.5x for the Q3 and Q4. Additionally, the credit facility for Venetian Macau also has tightening covenants, which go from 4.5x most recently, to 4x for Q1 and Q2 and 3.5x for Q3 and Q4. The company broke right through the max leverage covenant in Q3 and Q4 2008, when a $475 million bond issue and a $2.1 billion investment by Adelson saved the company, since a portion of the proceeds was used to satisfy a true-up provision improving the covenant ratio for Q3 and Q4, while extra cash was used to pay down some debt.
A default under the U.S. credit facilities would be a cross-default under LVS' airplane financings, while a default under Macau, would trigger a cross-default under the ferry financings, essentially implying any covenant trippage would likely be game over for common shareholders.
The company was roughly 6.2x leveraged at Dec 31, and with Vegas casinos demonstrating longer echos than Mammoth Cave these days, the number will likely soar this quarter. We hope the comrades in the LVS politburo are up to the task of streamlining operations and if that fails, they can just reroute Gulag "visitors" to the suites in the Venetian with the hope of some incremental minibar vodka revenues. Sphere: Related Content
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