Harrah's/Caesars increases debt, dumps stock

PhillyDeals: Harrah's payout: $92.5 million
Joseph N. DiStefano

There's plenty of money down in Chester.

Sure, the schools are broke, the factories are shut, and family income is half Pennsylvania's average.

But the outside investors who control Caesars Entertainment Corp. were able to pocket $92.5 million in gambling income from their neon-lit Harrah's Chester Casino on Feb. 3, five days before they began selling shares in their company on the Nasdaq stock market.

They needed the commonwealth's blessing to take home those millions.

After two hearings, the state Gaming Control Board approved a Caesars subsidiary's proposal to borrow about $335 million: $234.5 million to refinance what the company still owes from building the gambling hall, at today's lower rates; the $92.5 million for the owners, and $8 million in fees and expenses.

Caesars' controlling owners are Apollo Global Management L.P., the buyout firm cofounded by Joshua Harris, who heads the new Philadelphia 76ers owners' group, and TPG Capital Group L.P. (Texas Pacific Group), the buyout firm that owns Cardone Industries Inc., Philadelphia's largest remaining industrial employer, which has been moving operations to cheap-labor South Texas.

The gaming board's Office of Enforcement Counsel, which is supposed to make sure casino owners aren't stripping their own assets, at first challenged the payout.

"Since [Harrah's] Chester was increasing its debt by approximately $100 million and also upstreaming a large portion of that increased debt" to the casino's owners, "the Office of Enforcement Counsel took the position that [the casino] had to prove its continued financial stability by submitting evidence to the full board," Frank DiGiacomo, one of a team of Duane Morris L.L.P. lawyers who argued Harrah's case, told me.

At two hearings, the casino convinced the board that it could refinance at cheaper rates, that Caesars would keep investing in the casino so it stayed profitable, and that the investors were being paid in lieu of management fees Harrah's hadn't collected up until now, Doug Sherman, the board's chief counsel, told me.

The vote was unanimous, except for the fact that chairman William Ryan recused himself. A former district attorney for Delaware County, where Chester is located, Ryan was appointed by Gov. Corbett after the hearings started.

How much is $92.5 million, in Chester terms? More than five times the $18 million the Chester Upland School District raised from local taxpayers last year; not quite as much as the $87 million kicked in by the state (mostly) and federal governments, which are trying to cut back.

Chester Upland collected $2.75 million in casino revenue-sharing money through the state under Pennsylvania law, not nearly enough to close its deficit. The district faces more cuts and another state takeover.

It's too bad for schools in Chester, and other aged Pennsylvania cities choked with tax-exempt government, nonprofit, and abandoned real estate, that the laws here leave them to depend on local property taxes and the doubtful kindness of strangers. And that they don't own any casinos of their own.


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