Recovery Report: Las Vegas Sands' $5B Secured Financing
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| Publication Date: Apr 17, 2007 11:09 EST |
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 | Recovery Report: Las Vegas Sands' $5B Secured Financing | |
| | | Publication date: 17-Apr-07, 11:09:37 EST | |
Reprinted from
RatingsDirect
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On April 17, 1007, Standard & Poor's Ratings Services assigned its loan and recovery ratings to
Las Vegas Sands LLC and
Venetian Casino Resort LLC's proposed $5 billion first-lien senior secured credit facilities (see table 1). The recovery rating is constrained by a fairly limited security package (only the Las Vegas assets are included) and by the limited mandatory pre-payments for asset sales. Once the facility closes, the security package will be shared pari passu with $250 million in existing notes at
Las Vegas Sands Corp. The credit facility also includes provisions for an incremental $1 billion of additional borrowing. However, as this is uncommitted, our recovery analysis has not factored in the additional borrowing. Should the company request and receive additional funds under the incremental facility, our recovery rating will be reviewed.
(For the corporate credit rating rationale, see Standard & Poor's Ratings Services'
research report on Las Vegas Sands published earlier today.)
Table 1
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Las Vegas Sands Corp.--Credit Profile
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Corporate credit rating
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BB-/Stable/B-2
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Facilities*
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Issue Rating
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Recovery
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Expected Recovery (%)
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Maturity
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Repayment
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$1 billion revolver
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BB-
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2
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80-100
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2012
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Bullet
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$3 billion term loan
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BB-
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2
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80-100
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2014
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1% per year, with remainder at maturity
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$600 million delayed-draw term loan I
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BB-
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2
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80-100
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2014
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1% per year, with remainder at maturity
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$400 million delayed-draw term loan II
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BB-
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2
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80-100
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2013
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1% per year, with remainder at maturity
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Las Vegas Sands LLC and Venetian Casino Resort LLC are the borrowers under these facilities.
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Recovery Analysis |
Simulated default scenario |
The default scenario considers the potential for a slowdown in the highly competitive Las Vegas market as a result of a general economic downturn, as well as a slower-than-expected ramp-up of the Palazzo and Sands Bethworks following their openings, expected at the end of 2007 and into 2008. In addition, this occurs at a time when the company is highly leveraged and investing heavily overseas.
Standard & Poor's simulated payment default scenario contemplates:
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LIBOR rising by 200 basis points;
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Interest rates on the first-lien credit facility increasing by 200 basis points to reflect the higher risk resulting from the borrower's simulated credit deterioration;
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That the revolving credit facility is fully drawn at the time of default; and
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A $232 million priority claim from the outstanding balance of the furniture, fixtures, and equipment facility, as well as airplane financing.
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Valuation |
In evaluating the recovery prospects associated with the underlying collateral, Standard & Poor's used an enterprise value methodology, but only on the assets securing the first-lien facilities. We have also assumed that the projects in Las Vegas and Pennsylvania are completed as planned, as our year of default is 2011. To calculate the emergence enterprise value, we stressed EBITDA to the point where it represents a 20% decline from projected pro forma 2011 EBITDA, approximated adjusted interest expense, and applied an emergence multiple of 8x. Using the 8x EBITDA multiple under our simulated default scenario and taking into account the potential residual value of Bethworks (as there is no other debt in the U.S.), as well as certain priority claims, we arrive at an enterprise value of around $4.5 billion.
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Results |
Our emergence enterprise valuation results in 80%-100% recovery of principal for first-lien lenders in the event of a payment default.
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Transaction Summary |
Table 2
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Transaction Summary
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Borrowers
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Las Vegas Sands LLC and Venetian Casino Resort LLC
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Guarantors
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The facilities are guaranteed by LVS's direct and indirect material subsidiaries, with the exception all foreign and Pennsylvanian subsidiaries.
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Structure
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Mandatory prepayments: 100% of asset sales (with the exception of Palazzo Mall and units of Palazzo Condo Tower), 100% of insurance proceeds, new debt and pension plan reversions
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Collateral
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First-priority security interest in all assets of the borrowers and guarantors, with some exceptions.
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Legal jurisdiction
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State of New York
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Key financial covenant
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Minimum interest coverage (starting at 1.5x) to apply only to the revolving credit facility and a maximum consolidated leverage ratio (starting at 7.5x) to apply to all the facilities
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Analytic services provided by Standard & Poor's Ratings Services (Ratings Services) are the result of separate activities designed to preserve the independence and objectivity of ratings opinions. The credit ratings and observations contained herein are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. Accordingly, any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision. Ratings are based on information received by Ratings Services. Other divisions of Standard & Poor's may have information that is not available to Ratings Services. Standard & Poor's has established policies and procedures to maintain the confidentiality of non-public information received during the ratings process.
Ratings Services receives compensation for its ratings. Such compensation is normally paid either by the issuers of such securities or third parties participating in marketing the securities. While Standard & Poor's reserves the right to disseminate the rating, it receives no payment for doing so, except for subscriptions to its publications. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. |
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