Business Context and Reporting Period
Company: Las Vegas Sands Corp. (LVSC)
Filing Date: May 17, 2010
Reporting Period: Current Report (Form 8-K) regarding events on May 17, 2010.
Context: LVSC's indirect subsidiary, Venetian Orient Limited (VOL), entered into a material definitive agreement to secure financing for the development of an integrated resort project (Phases 1 and 2) on Parcels 5 & 6 on the Cotai Strip in Macau.
Key Financial Metrics and Facility Details
Total Credit Facility: $1.75 billion (equivalent in USD, HKD, or MOP).
Structure:
- Term Loan Facility I (TLF I): $750 million available until July 16, 2010.
- Term Loan Facility II (TLF II): $750 million available on a delayed draw basis until November 17, 2011.
- Revolving Facility: $250 million available until April 17, 2015.
Interest Rates: Adjusted Eurodollar Rate, Base Rate, or HKIBOR plus a spread of 4.5% per annum.
Undrawn Fees: 2.00% per annum on TLF I and TLF II; 1.50% per annum on the Revolving Facility.
Maturity: June 16, 2015, or the fifth anniversary of the initial borrowing under TLF I.
Security: First-priority security interest in substantially all of VOL's assets (excluding capital stock and certain equipment).
Guaranty: Obligations are guaranteed by Sands China Ltd. (SCL), LVSC's majority-owned subsidiary.
Material Changes and Covenants
Use of Proceeds: Funding design, development, construction, equipping, and pre-opening costs for the Macau project, plus working capital.
Repayment Terms:
- Mandatory Prepayments: Commencing March 31, 2013, 5% of aggregate Term Loans outstanding (as of Nov 17, 2011) per quarter. Increases to 7.5% per quarter starting March 31, 2014.
- Excess Cash Flow Sweep: Commencing Dec 31, 2013, 50% of excess free cash flow must be used to prepay Term Loans. This drops to 25% if the debt-to-EBITDA ratio is between 2.5:1.0 and 3.5:1.0, and is suspended if the ratio is 2.5:1.0 or lower.
- Final Maturity: Full repayment due May 17, 2015.
Financial Covenants (Post-Operations):
- Maximum Debt-to-Adjusted EBITDA ratio: 4.25:1.0 (decreasing over time).
- Minimum Adjusted EBITDA-to-Interest Expense ratio: 3.50:1.0 (increasing over time).
- EBITDA Cure: SCL may contribute cash or subordinated loans to cure shortfalls, limited to twice in any four-quarter period or four times in aggregate.
Cost Overruns: Under the Sponsor Agreement, SCL is responsible for all cost overruns and must ensure the project commences substantial operations by December 31, 2012.
Guidance, Risks, and Contingencies
Management Commentary: VOL expects to draw the full amount of TLF I prior to July 16, 2010, subject to initial funding conditions.
Risks and Contingencies:
- Events of Default: Include nonpayment, covenant violations, insolvency, cross-defaults, invalidity of project documents, or repudiation of obligations.
- Land Concession Risk: Termination of the land concession by the Macau SAR is an event of default; proceeds from such termination must be used to repay the facilities.
- Asset Sales: 100% of net proceeds from asset sales (outside ordinary course) must be used to repay the facilities unless reinvested within 12 months.
Investor Verification Checklist
- Verify the status of the "initial funding conditions" required to draw the $750 million TLF I by July 16, 2010.
- Monitor SCL's financial capacity to cover potential cost overruns and provide "EBITDA Cures" if financial ratios are breached.
- Track the project timeline to ensure substantial operations commence by December 31, 2012, to avoid default under the Sponsor Agreement.
- Review future quarterly reports for compliance with the mandatory prepayment schedules starting in 2013 and the Excess Cash Flow Sweep requirements.
- Assess the impact of the 4.5% interest spread and undrawn fees on the project's overall cost of capital.