Addendum – Nov. 3, 1997
The Culinary Union has prepared this release as an addendum to its report, entitled “Castles Made of Sand,” analyzing the risks of the Venetian Casino Resort in Las Vegas.
Venetian Casino Resort LLC and co-issuer Las Vegas Sands Inc. are issuing Mortgage Notes and Senior Subordinated Notes, totaling $500 million and underwritten by Goldman, Sachs Co. and Bear, Stearns Co.
In addition to the risks discussed in “Castles Made of Sand,” the Culinary Union raises the following issues for consideration by potential investors:
1. On June 26, 1997, Goldman Sachs Mortgage Company as Syndication Agent loaned Interface Group-Nevada, owner of the Sands Expo Center, $110 million of senior debt collateralized by the Expo. Mr. Sheldon Adelson is the sole stockholder of both Venetian Casino Resort and Interface Group-Nevada. This Goldman Sachs loan raises the following question: Is Mr. Adelson’s $95 million “equity” contribution to Venetian Casino Resort being funded by the proceeds of the Goldman Sachs loan to Interface?
2. Why did Mr. Adelson take a $20 million dividend from Las Vegas Sands Inc. in July 1997, prior to seeking $890 million in debt financing for the Venetian?
3. Las Vegas Sands Inc., which will operate the Venetian, will elect William J. Raggio as a Special Director upon consummation of the offering. Mr. Raggio is a Director of Santa Fe Gaming, a Las Vegas-based casino company with a history of failed or stalled expansion projects (in Illinois, Missouri, Mississippi, and Henderson, Nevada). Santa Fe Gaming also has bonds trading below par and a stock price of 75 cents per share, down from $18 in October 1993. That company has been plagued by a four-year-old labor dispute with the Culinary Union stemming from an election at the Santa Fe Hotel, which was won by the Union in October 1993 and litigated for years by management.
4. Venetian Casino Resort’s high cash flow and operating income projections are very dependent on aggressive projected room income. The company projects $126 million in departmental profit from rooms in year one, by assuming an Average Daily Room Rate of $167 in its first year of operations and a 93% occupancy rate. By comparison, according to analysts, in the year ending ending Dec. 31, 1996, the Mirage Casino-Hotel’s ADR was approximately $120 and Treasure Island’s ADR was approximately $100, both highly successful operations. By 2000, an additional 10,000 rooms are expected to be opened on the Las Vegas Strip, putting intense competitive pressure on room and occupancy rates at the Venetian.
5. Excluding mall operations, the Venetian also projects EBITDA of $198.2 million in the first year, representing 40% of projected revenues. By comparison, in 1996, MGM Grand generated $259 million in EBITDA, or 32% of revenues, primarily from its Las Vegas casino. The MGM Grand Hotel-Casino has 2,000 more rooms and 47% more casino space than the proposed Venetian Casino Resort.
6. Venetian Casino Resort is relying heavily on convention business from the adjacent Expo Center. It should be known that Mr. Adelson’s Expo Center charges three times as much for convention space as the Las Vegas Convention Center, which is currently expanding its capacity. Also, convention bookings often entail simultaneous negotiations over rates for rooms and convention space. Mr. Adelson has a conflict of interest between room rates charged by the Venetian and space rates charged by the Expo, and noteholders will have no recourse to the assets of the Expo Center.
These issues, coupled with the concerns raised by the Union in “Castles Made of Sand” should be considered carefully by potential investors.
For further information, contact Courtney Alexander, Culinary Union Research Director, at 702/387-7082.