Venetian liens released, debt rating downgraded

Gary Thompson

Thursday, Nov. 11, 1999 | 10:56 a.m.

A District Court judge released mechanics liens totaling $270 million filed against the Venetian on Wednesday, removing the threat of foreclosure from the $1.5 billion Las Vegas Strip resort.

The move by Senior District Judge James Brennan came after the Venetian posted surety bonds totaling $405 million, raising the amount it filed this week to $436 million.

State law requires that property owners post bonds totaling 150 percent of the face amount of liens, meaning the Venetian has "bonded around" about $290 million of the liens filed against it by construction companies.

The surety bonds were issued by Frontier Insurance Group Inc., a company that recently received a "negative outlook" rating from Standard & Poor's and a stock downgrade from Merrill Lynch.

Meanwhile, another ratings agency downgraded $712 million of Venetian debt, saying the resort "will have difficulty meeting its (year) 2000 interest and principal obligations."

After Wednesday's court action, attorneys for the Venetian and Lehrer McGovern Bovis, the resort's general contractor, said the release of the mechanics liens means a trial to determine the legitimacy of the claims filed by dozens of local subcontractors is closer to beginning.

"We will now get to the merits of the case," Venetian attorney Kevin Stolworthy said.

More than $300 million of liens have been filed against the Venetian, including one by Bovis for $145 million. The Venetian and Bovis agree there is some duplication of liens, but they differ on who is responsible for paying the underlying claims.

Some subcontractors who say they're suffering financially because they haven't been paid for work on the Venetian may file for expedited hearings. Brennan will determine the order of the claimants' presentations.

Meanwhile, both Standard & Poor's and Merrill Lynch issued reports on Frontier Insurance Group after the company said it was delaying issuance of its third-quarter report pending a review of its quarterly loss reserves.

Frontier stock was quoted at a 52-week low of $4.6875, off 18.75 cents a share, in early afternoon trading today.

And on Wednesday, Moody's Investors Service lowered its ratings on the Venetian's 12.25 percent mortgage notes, 10 percent senior subordinated notes and $190 million bank facility.

The lower ratings "reflect the company's weak operating results since opening, its tight liquidity and limited financial flexibility, and its significant contingent obligations arising out of the liens," Moody's said.

The ratings agency said it has concerns about the Venetian's ability to pay $162 million of principal and interest next year and spend a minimum of $15 million on maintenance.

Moody's said it expects the resort to generate cash flow of $120 million to $140 million next year, meaning "it is possible the company may continue to need external capital in 2000."

It also said that if the court determines the Venetian is liable for payments to lien claimants, "the company's fragile liquidity would be further weakened."