Credit watchers wary of Venetian bonds

Friday, Aug. 20, 1999 | 4:06 a.m.

Standard & Poor's put the Venetian's publicly traded debt on credit watch with negative implications due to uncertainties over the $1.5 billion resort's operating results and pending litigation.

S&P cited construction delays, the "difficult opening," the company's tight liquidity and uncertainty over the outcome of lawsuits between the Venetian and the lead contractor on the construction project.

However, S&P said it "believes the project's convention-oriented business model is sound and its good location, critical mass of restaurants and retail, and quality room product could produce solid cash flows over time."

The action affects $425 million of mortgage notes, which were quoted in the high 80s today, and $97.5 million of senior subordinated debt, which last traded in the low 70s.

The mortgage notes had traded up from the low 80s to the low 90s after Venetian owner Sheldon Adelson said in a conference call early this week he would "positively" make a $31 million interest payment due Nov. 15 even if operating results don't generate sufficient cash to do so by then.

The resort posted a $31 million second-quarter loss, though it was only partially open for two of the three months. In addition, $14.7 million of the loss was attributable to pre-opening expenses and another $12.9 million to interest payments made during the quarter.

Concerns over the resort's initial operating results have been exacerbated by the $250 million of mechanics liens filed against the Venetian by trade contractors who claim they haven't been paid for work and materials used to build the project.

The liens include $145 million of claims filed by the project's general contractor, Lehrer McGovern Bovis Inc., which has also filed a lawsuit seeking $580 million in damages. The Venetian has sued Bovis for more than $50 million in damages.