Venetian loses lien plea ruling

Gary Thompson

Friday, Nov. 5, 1999 | 11:16 a.m.

A Nevada judge ruled Thursday that the Venetian resort will have to post bonds totaling nearly a half billion dollars to release mechanics liens filed against it.

If the Venetian and its owner, Sheldon Adelson, don't post the bonds, lien claimants could begin foreclosure action against the $1.5 billion resort.

But the Venetian indicated it plans to "bond around" the liens by posting surety bonds, expected to cost anywhere from $5 million to $15 million in premiums, as quickly as possible to free up a credit line frozen by bank lenders and remove the foreclosure threat.

A Venetian attorney said today the process should be completed by Wednesday.

Thursday's ruling by Senior Clark County Judge James Brennan is a blow to the new Strip resort, which has been struggling to shore up its finances in the wake of massive cost overruns and weaker-than-expected cash flow since its soft opening last May.

The Venetian's financial results have improved markedly in recent weeks, with October being its strongest month to date. Sources say a big win from a Mexican high roller just two weeks ago helped boost cash flow to around $15 million for the month.

November is also expected to be a strong month for the Venetian due to the big Comdex convention that's expected to draw 200,000 people to Las Vegas and the Adelson-owned Sands Expo Center adjacent to his hotel-casino.

Still, to date the resort has fallen short of projected cash flow, which is used to cover debt payments. The Venetian has a $30.9 million payment due on Nov. 15, as well as about $11 million per quarter in bank debt, and at least $44 million of construction bills currently due.

Those obligations, plus the estimated cost of bonding around the liens, pushes the Venetian's current bills to between $90 million and $100 million.

According to the Venetian's latest financial disclosures, it has about $35 million of available cash, about $9 million of bank credit (once the bonds are posted) and cash flow for the quarter of an estimated $25 to $30 million, or between $69 million and $74 million available.

Adelson has vowed repeatedly he'll make up any shortfall through November, but Venetian officials said they haven't talked about what will happen next year if cash flow falls below debt-service requirements.

Uncertainties over the Venetian's ability to cover more than $130 million of debt payments next year have pushed the prices of its publicly traded 12.25 percent mortgage bonds to between 75 and 77, substantially below par value of 100 and yielding about 20 percent at those prices.

In addition, the Venetian and Lehrer McGovern Bovis Inc. -- the general contractor Adelson hired to manage construction of the resort -- disagree over how much is still owed to contractors who built the hotel-casino.

The Venetian said recently it owes $44 million, including $16 million to Bovis. But Bovis said it's owed $68 million, and has filed a $146 million lien against the Venetian. Liens filed by subcontractors against the resort boost the total to more than $330 million.

State law requires a property owner to post a bond equal to 150 percent of the face value of the liens, meaning Adelson will have to post a bond of $495 million.

Venetian executives couldn't be reached for comment on Brennan's decision, but a Bovis spokesman expressed jubilation today.

"Bovis is extremely pleased with the judge's decision," said Sam Singer. "We will continue our negotiations with Mr. Adelson and the Venetian to pay they bills they owe us and the subcontractors.

"Should this fail, we will pursue all legal remedies to collect for ourselves and the tradesmen," he said. The Venetian had asked Brennan to reduce the amount it would have to post because some of the liens are duplicated. The Bovis lien, for example, includes amounts the general contractor owes to subcontractors who've filed separate claims against the Venetian.

Venetian attorneys had argued that unless duplicate liens were eliminated, the resort would have to post far higher bonds than necessary. As Brennan noted in his ruling, "The Venetian contends that rather than pay millions of dollars in bond premiums for duplicate lien claims, those premiums could better be spent to pay the valid claims of lien claimants."

But Bovis had argued that the Venetian's request would leave unprotected scores of Nevada contractors who say they're owed millions of dollars for work on the resort.

Brennan's ruling said, "The issue of whether or not the liens are excessive ... is not at issue at this juncture. Rather, the issue is the adequacy of the security posted to release the liens and substitute the surety bonds in their place."

"The proposed plan of the Venetian to eliminate duplicative liens without the posting of duplicative bonds to secure each lien is too speculative," Brennan said. "The court has been provided nothing by way of a letter of intent or commitment from a bonding company setting for the mechanisms of how the Venetian's proposal would afford the protection the lower tier claimants presently enjoy."

Members of the Nevada Sub-Contractors Association said in a meeting Thursday night they need that protection.

"We're in a crisis mode," said NSCA member Doug Saffles, whose Saffles Construction Co. has a $1.3 million claim against the Venetian. "We've had to reduce our work force to 15 employees from 100 because we aren't getting the money we're owed.

"We'll do what we have to do to survive, but this is a crisis for the whole community. Those people we've had to lay off can't make car or house payments, and there's a ripple effect that is going to hurt a lot of people."

Compounding their concern is a letter the Venetian has sent to subcontractors hired by Bovis saying they were required to waive their lien rights and that they would be liable for the Venetian's legal expenses unless they withdrew their liens immediately. Most subcontractors say they'll fight that threat because the waiver violates state law.

Once the bonds are in place, state law also mandates that lien claimants have a right to a trial on their case within 30 days. All liens have been consolidated into a single case to be heard by Brennan.

But the large number of liens and claimants and the complicated discovery process, in which opposing sides offer evidence to support their respective cases, make it likely the trial will drag on for years before all claims are settled.