LVS hit its 52-week low of about $30 in mid-July and has rebounded to above $40. However, BofA analyst Shaun C. Kelley expects that gain to soon be erased because of the company’s high valuation, economic headwinds, and, primarily, its needs for additional funding across the organisation:
LVS needs money at each of its 3 subsidiaries: U.S., Singapore and Macau. With [CEO] Adelson’s backstop, funds are available but would be expensive/dilutive from any other source. Regardless, we think the margin for error is lower.
1. Need cash in the U.S. starting in Q3 due to covenants. Due to a 7.5x leverage covenant, we estimate LVS needs ~$1.2B in the U.S. over the next year to not violate its covenant and to finish its pipeline (PA/LV).
2. Need cash in Singapore due to 20% equity requirement. LVS needs ~$400M in Singapore from the U.S. or needs to raise additional debt given it is required to have 20% equity to draw down on its revolver. Needs would be higher if the $4.5B budget is increased for any reason.
3. In Macua, if the targeted financing falls short or the current projects go meaningfully over budget, funding could prove tight as well given the lack of available resources in the U.S.
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