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September 23, 2014

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Adelson bails out Las Vegas Sands with cash

It takes more than skill to survive on the Strip, especially now with business plans and financing deals imploding like so many old hotels.

It takes cash.

Las Vegas Sands Chief Executive Sheldon Adelson - one of the world's richest men - has a lot of it.

Late yesterday Adelson agreed to loan his company $475 million to reduce corporate debt and avoid violating leverage requirements set by lenders.

Breaking such agreements can hurt a company's ability to raise more money in the future.

Adelson's investment in the company comes in the form of a convertible bond with a 6.5 percent interest rate.

Las Vegas Sands stock rose on the news yesterday but fell sharply today. Shares lost more than 13 percent of their value, closing at $31.32.

Analysts had expected the cash infusion and Adelson had indicated the prospect several weeks ago.

Las Vegas Sands stock is subject to one of the most heated debates on Wall Street. Short-term bears question the company's ability to maintain profits over the next year or so, while long-term bulls say the company's megaresort strategy in Las Vegas and Asia will give it a leg up over competitors in upcoming resort markets.

Many bears, also negative on the gaming industry as a whole, have dumped their shares. The bulls call that an overreaction and a buying opportunity.

Analysts also are focused on the company's efforts to finance its $10 billion-plus "Asian Strip" of resorts in Macau, China. The company aims to refinance a $3.3 billion loan and secure another $2 billion to finish construction on a couple of hotels on the so-called Cotai Strip which are expected to open in 2009.

In a statement Tuesday, Adelson said his company's business strategy is little changed in the downturn.

"This investment will strengthen our capitalization and liquidity position as we continue to execute our plans," he said.

The company's leverage will once again be put to the test Dec. 31. According to agreements with lenders, the company's debt is not allowed to exceed 7.5 times its cash flow.

The company could slow certain developments or cut expenses as an alternative to seeking more cash from Adelson, Deutsche Bank stock analyst Bill Lerner said in a research note to investors today.

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