High Leverage + Real Estate + Bet On Discretionary Spending = Death?

Want to see what happens to a company taking on too much debt and engaged in a special type of real estate, while being exposed to the consumer?



Momentum investors and speculators may feel happy looking at the chart--after all, if you bought at $40 and sold at $150, you would have made more money than I probably will in 20 years (and that's without my negative returns ;) )--but it's not a happy picture for a typical investor. Let's not forget that this company's stock price was rallying while the Subprime Virus was infecting everything in sight. Yet it ends up blowing up big time.

The company? Las Vegas Sands. What was one of the largest casino operators in the world (by market cap) has been reduced to almost-nothing.

The big problem facing Las Vegas Sands right now is debt:

Casino operator Las Vegas Sands Corp. [LVS-N] said Thursday that it is in jeopardy of missing certain financial covenant requirements and needs to raise more capital.

Shares of Las Vegas Sands plunged $3.63 (U.S.), or 31.1 per cent, to $8.03 in morning trading. Over the past year, the stock has traded between $4.32 and $122.96.

In a filing with the Securities and Exchange Commission, Las Vegas Sands said it does not expect to comply with its maximum leverage ratio covenant for the fourth quarter which ends on Dec. 31, and potentially afterward. If it defaults, lenders would be able to exercise their rights under the agreements, including bringing financing maturity dates forward.

The defaults would “raise substantial doubt about the company's ability to continue as a going concern,” the filing stated.


According to Yahoo Finance, LVS has a debt to equity ratio of 3.87, with total debt of $8.92 billion and cash of $800 million. Keep in mind that almost anyone would have said that this was a good company as recently as late last year. A big chunk of the investing population might even have said that they would rather own casinos than almost any other consumer company. Yet it is on the verge of collapse.

On the bright side, the situation is not as dire as it seems. LVS may be able to raise capital, possibly with the help of the majority owner who controls 70% of the company. But it just goes to show what playing with debt does to you.

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