In the Land of Duh!: Moody's Downgrades Las Vegas Sands (LVS)

Moody’s had had the corporate debt ratings of Las Vegas Sands Corp.(NYSE: LVS) on review for possible downgrade since mid-July.  Just today, the debt ratings agency announced that it has lowered the corporate debt ratings of the casino operator.  Furthermore, the ratings were also placed on review for possible further downgrade(s).  In mid-July the stock traded as low as the $30’s and rallied later in July and August to see $50.00+ again.  Shares have been trading at under $5.00 today.  When will the timeliness of ratings agencies finally be challenged by oversight or by regulatory agencies?

The Moody’s downgrade reflects the casino operator’s considerableleverage, the continuation of significant negative trends in Las Vegas,and an expectation that these trends will continue in the foreseeablefuture.  it further considers recent visitation restrictions in Macaowhich will probably slow its growth at least until the Chinesegovernment decides to relax restrictions there.

The ratings agency did positively note the delay in capital spending,and combined with the recent capital raise program should alleviateconcerns related to liquidity and covenant compliance.  But the reviewfor possible further downgrade(s) considers that the proposed capitalraise has not closed and is in final stages of a $2.1 billioninjection.  A failure to successfully raise adequate new capital wouldlikely result in a debt covenant default and could jeopardize thecompany’s ability to operate as a going concern.   The risk is that theratings could be further taken down by several notches.

Moody’s decided to take a consolidated approach to rating Las Vegas Sands and all of its operating
subsidiaries.   Below are the downgrades:

• Corporate family rating to B2 from Ba3
• Probability of default rating to B2 from Ba3
• $250 million 6.375% senior notes to B2 from Ba3

Venetian Casino Resort, LLC (and its co-issuer Las Vegas Sands, LLC)ratings lowered and placed on review for possible downgrade:

• $1 billion revolver expiring 2012 to B2 from Ba3
• $3 billion term loan due 2014 to B2 from Ba3
• $600 million delay draw term loan due 2014 to B2 from Ba3
• $400 million delay draw term loan due 2013 to B2 from Ba3

Venetian Macao Limited ratings lowered and placed on review for possible downgrade:

• $700 million revolver expiring 2011 to B2 from B1
• $1.8 billion term loan due 2013 to B2 from B1
• $100 million term loan due 2011 to B2 from B1
• $700 million delay draw term loan due 2012 to B2 from B1

When you add all this up you can see the mountain of debt that thecompany already has.  But you can also see that this downgrade frommoderate junk status down deeper into junk status is also about astimely as a broken watch.  Moody’s and S&P both operate under"taking the new facts into consideration and how the new developmentswill affect their credit quality ahead."  But when you see this youalso wonder how much longer investors will even care what the ratingsagencies have to say.

Jon C. Ogg
November 12, 2008