Thursday, Oct. 17, 2002 | 11:34 a.m.
Analysts for a New York bond-rating company are reviewing the Venetian hotel-casino's financial prospects for a possible ratings upgrade, citing strong business at the $1.5 billion megaresort.
"Moody's decision to place Venetian's ratings on review for possible upgrade was prompted by the company's improved EBITDA (cash flow) performance despite a sluggish economy, competitive pressure on room rates, continued competition in the high-end segment, and increasing competition in the convention market," Moody's said Wednesday.
An upgrade by Moody's Investors Services could result in the Venetian's holding companies being able to borrow money at lower interest rates.
Moody's is reviewing how the company's cash flow will change next summer when a new 1,000-suite expansion atop the existing parking garage is completed. The Venetian already has more than 3,000 suites.
The additional suites, to open in June, are part of a $200 million phased expansion that also would add 150,000 square feet to the Venetian's Congress Center convention area. Between the Venetian convention area and the adjacent Sands Exposition and Convention Center the company also owns, the complex has more than 1.2 million square feet of meeting space, making it the fifth largest in the country.
Moody's said it would consider the company's convention business and the new suites when it makes its review, scheduled to be completed within three months.
Currently, bonds for parent company Las Vegas Sands Inc. and Venetian Casino Resorts LLC have speculative "junk bond" status, indicating a high risk for investors, but similar to those used to build many Las Vegas resorts including the Aladdin and the Mirage. Last week, Standard & Poor's, New York, assigned high-risk ratings to debt that will be used to build Steve Wynn's $2.4 billion Le Reve resort on the Strip. Moody's issued similar speculative-grade ratings today to Le Reve.
Moody's review will focus on Venetian's ability to achieve further cash flow gains through means other than cost reductions, as well as the company's ability to reduce and maintain leverage below the maximum leverage ratio contained in a secured bank loan agreement, said Keith Foley, a senior analyst for Moody's.
Foley said once the hotel tower is complete, the company should be able to reduce its debt-to-cash flow ratios. The current leverage ratio does not include debt for the expansion, but once the project is completed it would gradually be added to the total debut amount used for calculation purposes.
Las Vegas Sands Chairman Sheldon Adelson's proposed casino enterprises in Macau are not part of the debt analysis.
The company's $850 million 11 percent second mortgage notes due in 2010 currently have a Caa1 rating by Moody's. The rating company defines those bonds as having "poor standing" and "may present elements of danger with respect to principal or interest."
Foley said it was unlikely the Venetian's debt would receive an investment-grade rating anytime soon because of the speculative nature of the industry.
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