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Las Vegas Sands warns of potential bankruptcy

Updated Thursday, Nov. 6, 2008 | 5:05 p.m.

Las Vegas Sands, which owns the Venetian and Palazzo casinos, this morning warned investors that there is "substantial doubt about the company's ability to continue as a going concern" because of the company's failure to maintain a certain ratio of debt to earnings as required by its lenders.

In a filing with the Securities and Exchange Commission, the company said it would not be in compliance with the so-called maximum leverage ratio for the fourth quarter and in subsequent quarters – a situation caused by falling earnings that haven't kept pace with outstanding loans amid this downturn.

Defaulting on these bank agreements will trigger defaults on other outstanding loans, allowing all of the lenders to demand repayment, which could push the company into bankruptcy.

Such disclosures are typical for companies a step away from bankruptcy court. But some analysts hold out hope that the company will be successful in a last-ditch effort to raise additional financing. (The company filed a separate notice this morning in preparation for issuing securities, which could include stock or bonds.)

Other options include delaying or scaling back such projects as the company's under-construction resorts in Macau and its St. Regis-branded condos at the Palazzo. The company said this morning it was evaluating the possibility of scaling back spending on its global projects.

"We still expect Mr. Adelson to put new money into the company and believe they are working on the possibility of getting others to participate," Jefferies & Co. stock analyst Larry Klatzkin said in a research note this morning.

Klatzkin said the filing officially declared what investors have known for some time, that the company faces a default and is acting to prevent it.

Most analysts are recommending investors hold or sell the shares, which have lost 90 percent of their value over the past year. The company has been one of the gaming companies hardest hit by the credit crisis because of its high debt load and aggressive growth pipeline. Also, the Palazzo's earnings have been especially poor since the property opened in January.

Less likely to be shelved, analysts say, are the company's Sands Bethworks resort in Pennsylvania and its $3.6 billion Marina Bay Sands resort in Singapore, both expected to open next year.

Deutsche Bank stock analyst Bill Lerner said he expects some combination of raising capital and cost cutting, either from delaying or scaling back certain projects. Las Vegas Sands Chief Executive Sheldon Adelson could also pony up more cash, as the Adelson family in September, Lerner said.

Another option, boosting earnings, is unlikely.

Next week, Las Vegas Sands will report third quarter earnings that are expected to be down from a year ago. Analysts have reduced those projections in recent weeks.

What Las Vegas Sands needs now, but can't be bought, is time.

To stay out of default with its lenders, the company must seek waivers or amendments to its bank agreements. It's unclear how willing lenders will be to give the company time to work through this economy and raise additional money at reasonable cost.

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