 |
Moody's Assigns B2 To Upsized First Lien Facility Of Lake At Las Vegas Joint Venture New York, April 27, 2005 -- Moody's Investors Service assigned ratings to Lake at Las Vegas Joint Venture (Lake Las Vegas ), including a B2 to the upsized senior secured first lien term loan. The ratings of B1 and B2 on the existing first and second lien term loans will be withdrawn. The ratings outlook is stable. Net proceeds from the $135 million upsizing of the first-lien term loan facility will be largely used to refund the $125 million second lien term loan facility. Pro forma for this transaction, total debt/net value as of March 31, 2005 would be 51.1%. At the time of the assigning of a B1 rating to the existing first lien term facility in October 2004, first lien debt/net value was less than 40%, which permitted the notching up above the senior implied rating. The diminution of collateral protection in the proposed new capital structure as well as the illiquid nature of the collateral removes the justification for the notching up. The stable ratings outlook reflects Moody's assessment that Lake Las Vegas has reached the inflection point in its development cycle and should be in a position to harvest cash flows rather than continue to pour massive infrastructure spending into the community. The ratings incorporate the short demonstrated track record of the project and limited historical audited financials provided by the company, the location and geographic and demographic concentration of the development, market risk, indications of speculative excess in the Las Vegas market, and the negative net worth of the company after adjusting for last year's dividend to the owners. At the same time, the ratings acknowledge the strength of the Las Vegas housing market, the successful track record of the owners in prior large developments, the substantial infrastructure investment already made in the project, the unique attributes of the development's water rights and 320-acre private lake, and the level of project acceptance achieved to date. The rating actions are listed below: B2 rating is assigned on $533.3 million of senior secured first lien term loans due November 1, 2009 B2 senior implied rating is confirmed B1 rating on $435 million of senior secured first lien term loans due 2009 is withdrawn B2 rating on $125 million of senior secured second lien term loans due 2010 is withdrawn Although prior owners began development of Lake Las Vegas in 1964 and the current owners took over the project in 1988, revenue and cash flow generation did not achieve critical mass until 2004. Audited financial statements for the prior two years show rather insignificant performance. In 2004, the company recorded $197 million of revenues and $139 million of operating cash flow. While all-time records for the company, they came in below earlier projections of $226 million and $165 million in revenues and operating cash flow, respectively, indicating the choppy nature of lot sales. Going forward, revenue and cash flow projections effectively extrapolate 2004's performance out into the future. Should these projections fall significantly short, amortization of the term loan facility could come under pressure. The Lake Las Vegas development is located 17 miles east of the Las Vegas strip and is geared to a more affluent, vacation/retirement/second home demographic slice of the market. The challenge for the project will be to lure homeowners and hotel guests away from the strip, where much of the excitement is and where high rise towers geared to the affluent buyer are being built, and out to a somewhat remote resort location. In addition, the company's revenue base is derived from a single site in one city, which makes geographic concentration an issue. The company also faces considerable market risk in that there are no mandatory take-or-pay land sale contracts as in some other land development projects. If a recession similar to the one that occurred in Southern California in the early 1990's should occur, this could slow the absorption rates of land, stretch out the carrying costs for a number of years, and result in burning through the over collateral and stressing the cash flows The Las Vegas housing market has experienced very rapid price appreciation in recent years, most significantly in the past 12 to 18 months. As a result, speculative buying and flipping have increased, leading to an increase in the number of resales on the market that are competing with new home sales and causing at least one homebuilder (Pulte) to have to give back some of its 2004 price increases in order to drive cancellation rates back down to more normal levels. Although the owners will still derive significant residual values at the back end if things go according to plan, they withdrew more than the accumulated equity capital of the company in 2004. Moody's would feel more comfortable if they still had substantial investment remaining at risk.. On the plus side, Las Vegas has consistently been one of the strongest residential housing markets in the country with lot supply being constrained by the timing of land sales by the Bureau of Land Management, which is the dominant land owner in the area. The owners of Lake Las Vegas , Ron Boeddeker and certain Bass family interests through their jointly owned company, Transcontinental Land Company, have successfully developed other large projects in the past, such as the McCormick Ranch in Scottsdale, AZ, Lake Arrowhead, and Waikoloa on Hawaii's Big Island. The owners and third parties have made substantial infrastructure, retail, and residential investment in the project. To date, over $590 million of partner (Transcontinental) capital, $700 million of homebuilder, retail village and hotel capital, and $325 million of capital invested by homebuyers in the various Lake Las Vegas communities have been invested since inception. The company estimates that it needs to make approximately $62 million of additional infrastructure investment to realize more than $1 billion of net value remaining in the development. Lake Las Vegas is a 3592-acre resort and destination community and is one of the larger master-planned communities in Las Vegas . Its claim to uniqueness, however, is derived from the private lake and dam which support the water needs of the community. The private dam, which stands 18 stories high and stretches over 1.25 miles, is approximately the size of the Hoover dam. This lake and water supply are unlikely ever to be duplicated as water rights of this magnitude are no longer available in the water-constrained Las Vegas Valley or other regions in the West. While the project has been in development over many years and still has much in the way of unsold land to market, there has been some project acceptance achieved to date. It has managed to attract a Hyatt Regency Hotel, which opened in 1999, and a Ritz-Carlton, which opened in 2003, and it has sold roughly 30% of the developable land to date. The first lien term loan facility will have a borrowing base calculated at 80% against lots under sale contract, 65% against lots under option contract, and 60% against entitled land not under contract. There will be a 100% excess cash flow sweep, which will step down to 50% upon the company's delivering to 2.5x total debt/operating cash flow, and a dividend basket of up to 50% of excess cash flow so long as total debt/operating cash flow is less than 2.5x. Other covenants are a total debt/net value limitation of 65% and operating cash flow/cash interest of 2.0x. Required amortization of the first lien term loan is 1% per annum for the first four years with a 96% bullet in the fifth year. Headquartered in Las Vegas , NV, Lake at Las Vegas Joint Venture and its co-borrower, LLV-1, LLC, own and operate the Lake Las Vegas Resort, a 3592-acre master planned residential and resort destination located 17 miles east of the Las Vegas strip. Projected revenues and operating cash flow for the twelve month period that will end on December 31, 2005 are approximately $328 million and $141 million, respectively. Subscribe now to The Wall Street Journal and get up to 8 weeks FREE
|
