Las Vegas' Losing Streak

The credit squeeze, on top of the travel-and-gambling slump, is forcing the Sin City billionaires to beef up their balance sheets

In Las Vegas these days, even billionaires are getting their credit checked. On Sept. 30 Las Vegas Sands (LVS) founder Sheldon Adelson announced that he would ante up $475 million from his personal fortune to buy preferred stock in the company, which will pay 6.5% interest over five years. Adelson's notes will convert at $49.65 per share, a considerable climb from the $31 at which they currently trade. The move shored up Las Vegas Sands' balance sheet. Without the extra cash, the owner of the marble-lined Venetian resort, with its Canyon Ranch spa and indoor gondola rides, would have found itself in violation of its bank loan agreements.

It's like that all over Sin City right now, as the casino industry there faces the steepest slump in its history. In July, casino revenues on the city's famed Strip fell 15%, to $820 million. They are down 7% citywide so far this year. Shares of many top casino operators have sagged 70% from their peak last year. Las Vegas Sands' stock dropped 13% on Oct. 1, after Standard & Poor's said that despite the cash injection, the company remains under review for a possible downgrade because of weak business conditions and a potential slowdown from Sands' Macau operations.

Next door to the Venetian, mogul Stephen Wynn has been busy negotiating with his bankers. With profits at his flagship Las Vegas resort down 28% in the second quarter and a new $2.3 billion casino hotel due to open in December, Wynn paid $4 million in fees and persuaded his grumbling bankers to change the covenants on his loans in mid-September. The moves allow Wynn Resorts (WYNN) to maintain a higher debt-to-cash-flow ratio without having to pay higher interest rates to lenders. "We wanted to make sure the banks didn't have too high an expectation for us," Wynn explains, "just in case things get worse."

Delayed Projects

Wynn's old company, MGM Mirage (MGM), is busy trying to raise the additional $500 million it needs to complete a $3 billion bank financing for its giant CityCenter project on the Strip. The $9.2 billion resort, due to open in December 2009, is the largest private construction project in the country. MGM and its joint venture partner, the investment firm Dubai World, may end up kicking more of their own money into the project. But the partners may face more hurdles next year if they can't sell all the condominiums they hope to at the site. UBS (UBS) casino analyst Robin Farley figures CityCenter will still have as many as one-third of its 2,600 condominiums unsold by opening day, meaning the cost to MGM and its partner will rise by another $600 million.

The tough financing environment has prompted some operators to delay projects. In August, Boyd Gaming (BYD) shelved its $4.8 billion Echelon resort after encountering difficulties financing a mall and two hotels with joint venture partners. Nine floors of the main tower had already been built. In mid-September the company renegotiated a contract with Morgans Hotel Group (MHGC), which was to build versions of its Delano and Mondrian hotels on the site, lengthening by 15 months the date financing was required and returning $30 million in deposit money. "It was certainly the right thing to do," Boyd Chief Executive Keith Smith says of the postponement. "Things have gotten worse. You wake up every morning trying to find additional sources of revenue."

Casino operators are trying to lure gamblers with discounts and other promotions. Anthony Curtis, who runs Las Vegas Advisor, a magazine and Web site for bargain-hungry Las Vegas visitors, says the discounting is most evident in room rates, some of which are down as much as 30% from last year. Casinos are throwing in other perks as well. MGM's high-end Mandalay Bay Resort was offering midweek rates of $109 per night that included such extras as two-for-one spa treatments and breakfast at its House of Blues restaurant, as well as a free round-trip airline ticket for a return Vegas trip if three nights are booked. "They're all getting relatively creative," Curtis says. "It's a nervous time here, no doubt."

Reached on Sept. 29, shortly after the House of Representatives voted down the proposed $700 billion bailout package, Wynn was furious—but not because Congress failed to pass the proposal. "I am totally disgusted as an American by the leadership shown by both parties," he said. Wynn thinks Washington should force bankers to renegotiate loans to troubled homeowners, much as they have for the big Las Vegas operators. "Those assets should stay where they were created," Wynn screamed. "Bankers will say tomorrow, 'O.K., let people stay in those homes.' [Home prices] will go back to $250,000. The people that live in them will pay what they can afford." And then, just maybe, they'll plan Las Vegas vacations again.

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