My Family Foresight Thought Experiment is not a completely hypothetical exercise:
1) In 2006 Sheldon Adelson and his wife established a foundation to fund medical research into life-threatening diseases, especially cancer, with an innovative and much-needed emphasis on scientific collaboration. At the time Adelson, CEO and principal owner of Las Vegas Sands Corp, was the third richest person in the United States, with a fortune estimated by Forbes at $20.5 billion (it would grow to over $30 billion at its 2007 peak).
Medical research, especially cancer research at the cutting edge, is a multi-decade project. Any assets set up to fund it should be invested with a matching time horizon.
2) In yesterday's post on endowments I wrote the following:
It raises the eternal question: What do you do when a high percentage of your yearly spending comes from income on an investment portfolio whose deliberate pursuit of high long-term returns almost always means it's subject to significant fluctuations in annual returns?
What's true of households is true of companies. In 2005 Las Vegas Sands covered its interest expense obligations with pretax income by a ratio of 4.0x, a comfortable margin of safety. Two years later, after a debt-fueled expansion of the company, that ratio had shrunk to 1.56x.
3) The company's debt maturity schedule was admirably long-dated, with only about $260mm due before 2010, out of a total of $7+ billion. But the devil is in the details. From a company 8-K filed on November 6 [my emphasis in bold]:
4) Sheldon Adelson is a million times the businessman I'll ever be, and given his philanthropy and his honorable decision to commit $1 billion of his own money to save his company (a huge chunk of his reduced net worth), he's a million times the mensch as well. But in no way can he call himself the victim of this so-called "unprecedented" crisis. In the final analysis, he put an empire of over $30 billion at the mercy of a single 12-month earnings covenant in a single credit agreement, with almost no margin of safety. His foundation, and those who would benefit from it, have sufferred as a result.