LVS: LATEST GROUND CHECK COMES BACK POSITIVE

We checked in with our Macau sources recently and came away a little more constructive on LVS’ near-term credit situation there. As we wrote about in our 3/1/09 post “MACAU: A SENSE OF OPTIMISM”, we think investors should begin to look past the tough Rolling Chip comparisons of the first 3 quarters of 2009. Relief on the near-term covenant issues would provide the second punch of a solid one-two shot in the arm for LVS.

Our 2/23/09 post, “LVS: RESIDUAL VALUE RESIDING IN MACAU”, outlined possible remedies for the potential leverage covenant breach on the Macau credit facility. Two of these remedies appear more likely since we wrote about them last week. First, it appears LVS is making progress on selling their mall there. A net sales price of $800 million looks reasonable. Second, our sources indicate the Macau government is becoming more agreeable to approving residential sales at the Four Seasons Macau. While previously speculated sales prices at $1,500 per square foot are unlikely, we think investors would still cheer the more likely prices of $800 per square foot, or $600-650 million in proceeds. These transactions would go a long way to curing the 2009 covenant issue.

Other remedies include selling off a portion of the equity in the Macau operations to the public and amending the leverage covenant. We believe both of these options are on the table.

The upshot here is that the market continues to price LVS as an option yet there are a number of equity enhancing levers the company can pull. These levers do not appear to be well understood by investors. Of course, LVS management has a history of disappointing when it comes to asset sales, development projections and timelines, etc. Thus, investors are likely to be skeptical until the company can put something on the tape. If and when they do, look out.


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