LVS: DEBT BUYBACK MOVES THE 09 NEEDLE

LVS filed an 8-K announcing the company was seeking an amendment to its credit agreement. The proposed amendment would permit the company to buy back outstanding term loans up to a maximum $800 million in face value. An amendment to tender for the notes requires majority lender approval and will likely involve an amendment fee. LVS indicated that they may or may not pursue the tender. Presumably, they would not pursue it only if other options were available, a positive outcome in either scenario.

The debt is currently trading at between 45 and 50 cents on the dollar. Even if LVS tenders at 55, this would be a significant deleveraging event. We calculate at that price with cash on hand, LVS would reduce leverage by 0.75x, effectively putting them in the clear in terms of the leverage covenant in its credit facility for 2009.

While LVS still faces a potential 2010 breach as the maximum leverage ratio steps down, the current move potentially buys them a lot of time.

Potential breach in Q2/Q3 of 2009 without any debt buyback
Debt buyback would allow LVS to escape covenant breach in 2009