Venetian probe begins

A state agency is investigating the nonpayment of Venetian subcontractors and a debt-rating service is considering cutting its ratings on the resort's debt.

The Nevada State Contractors' Board opened its probe Friday after receiving a complaint against Lehrer McGovern Bovis Inc., the general contractor on the $1.5 billion Venetian construction project.

Meanwhile, Moody's Investors Service said it is reviewing $712.5 million of debt issued by the Venetian and its parent company, Las Vegas Sands Inc., as a prelude to a possible downgrade of its ratings.

Moody's said the review reflects its concerns "about the company's near-term liquidity position stemming from liens filed against the company by its contractor and subcontractors, its potentially weak initial operating results in part due to its delaying opening and opening with an incomplete facility, and an increase in the construction costs ... and cost overruns."

The rating agency said it "will focus on the potential impact to the company from litigation with its contractor and liens filed by its subcontractors, the company's financial flexibility given its increase in construction budget and cost overruns, and the company's liquidity given these concerns and the fact it has a $30 million interest obligation to meet on Nov. 15 on its mortgage and senior subordinated notes."

Credit Suisse First Boston has said its study of Venetian's operating results so far indicate a "best-case scenario" shortfall of at least $16 million by the time the payment is due.

The Moody's review could lead to a cut of its B3 rating on LVSI's $425 million of mortgage notes and the Caa1 and B1 ratings on Venetian's $97.5 million of senior subordinated notes and $190 million bank facility, respectively.

The current ratings give the Venetian's debt junk-bond status.

The Venetian's 100 par mortgage notes, which would be paid after mechanics liens in the event of a reorganization, were quoted at 80 bid today, a bond trader noted.

The mortgage notes traded as high as 106 in May just before the Venetian opened, but have fallen sharply since then as word about the resort's operating results filtered out. Bond traders' wariness increased recently as news about the cost overruns and claims against the company spread.

Lehrer McGovern Bovis and the Venetian have been hit with liens and other claims by subcontractors who haven't been paid for work they did on the resort. Bovis itself has filed a $145 million lien against the Venetian and three affiliates, and the resort and construction manager have filed lawsuits against each other.

Meanwhile, the State Contractors Board has assigned an investigator to handle complaints of nonpayment, board Executive Officer Margi Grein said.

"The board staff will expedite and aggressively pursue the investigation of this case and any additional complaints against Bovis submitted to the board," Grein said.

"The investigation will be conducted fairly and impartially, as will any disciplinary hearing."

Grein said the board can take disciplinary action against a contractor if violations of state law are proven. Penalties can include fines, license suspensions or revocations or corrective orders, depending on the severity and nature of the violations, she said.

Bovis' state contractor's license was renewed last Tuesday. The New York-based company was retained by Venetian owner Sheldon Adelson to oversee construction of the 3,036-room hotel-casino.

More than 100 subcontractors were hired by Bovis and the Venetian to work on the massive Strip project.

Representatives from more than 50 local subcontractors met last week to discuss strategies to avoid financial losses or possible bankruptcies resulting from their failure to get paid. Many had used their own funds to buy materials and pay union workers, expecting to get reimbursed for their expenditures.

Bovis and the Venetian have each accused the other of responsibility for failing to pay the subcontractors. The Venetian filed a lawsuit against Bovis seeking more than $50 million for allegedly failing to properly manage the construction project. Bovis has sued the Venetian for $582 million in compensatory and punitive damages for allegedly failing to pay it for work done.

However, the two sides are continuing their attempts to resolve the issue amicably.

"Sessions are scheduled this week to continue our negotiations with the Venetian over payment issues," Bovis spokesman Sam Singer said today.

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