Juggling Massive Debt

Howard Stutz | INSIDE GAMING

Dreams, yes; dollars to fund them? We'll see ...

Posted: Jun. 24, 2012 | 2:06 a.m.

There's no shortage of gaming expansion opportunities in North America. But is there enough money to develop these dream casinos for an industry recovering from two years of declining revenues brought about by global recession?

And, even if casinos come to fruition in Toronto, New York City, and other major markets, how wise is it for large casino operators - already saddled with billions of dollars in corporate debt - to take on more multimillion-dollar developments?

Time will tell.

Financial analysts said avenues for funding have opened recently.

"There are a number of financing markets that are ripe for new gaming development," Union Gaming Group Managing Director Bill Lerner said. "That includes the banks and bond markets and, to some degree, the equity markets."

For companies with long-term debt loads that rival those of some Third World nations, Lerner said taking an equity partner often solves some problems.

Also, many gaming developments often have three-to-five-year time frames between conceptual discussions and groundbreaking. Some projects might seem promising at the outset, but politics, anti-gaming sentiment and legal maneuvering can kill them long before a hand of blackjack is dealt.

"The bottom line is that a lot of these companies are doing the necessary first steps," Lerner said.

"They recognize there can be a long lead time in some of these markets."

With Las Vegas casino development all but stalled for the rest of the decade, Nevada's largest gaming companies are spanning the globe to look for growth opportunities. Toronto and New York City have won attention from casino industry titans, but they're still early in the game. Legislation to legalize an integrated resort in each market has yet to be drafted.

Casino operators have also explored Japan, Korea, Vietnam and other parts of Asia in search of the next Macau and Singapore.

Spain is also percolating with casino fever. Spanish leaders are considering a $22 billion Macau-like complex in either Madrid or Barcelona to be built by Las Vegas Sands Corp.

Closer to home, in Florida and Texas, gaming legalization has suffered legislative setbacks.

Proponents continue to push the idea, however, which sparks interest inside Strip corporate boardrooms.

Hovering over all this talk of gaming expansion are financial concerns. The recession pushed several companies to the brink of financial ruin just a few years ago.
But that seems to be in the past.

Caesars Entertainment Corp., despite an industry-high corporate debt of nearly $20 billion, was able to finance the completion of the 660-room Octavius Tower at Caesars Palace, as well as construction costs for the $550 million nongaming Project Linq, which is expected to open on the Strip next year.

Caesars' partnership with Rock Gaming financed the $350 million Horseshoe Casino Cleveland, which opened last month. The companies are building the $400 million Horseshoe Casino Cincinnati, which opens next year.

Caesars and Rock Gaming are seeking approval for a casino in Baltimore. Caesars also wants to build a $1 billion Boston-area hotel-casino in a joint venture with the Suffolk Downs racetrack.

"Caesars has been able to take advantage of these opportunities by taking on an equity partner," Lerner said. "The demand is out there for other companies looking to do this."

Casino operators are quick to plant the corporate flag on any potential site.

MGM Resorts International announced nine days ago it was staking claim to National Harbor in suburban Maryland. The company wants to build an $800 million hotel-casino complex 10 miles from the nation's capitol in partnership with the Peterson Cos., which developed National Harbor.

The project is a long shot. On Wednesday, a work group established by Maryland's governor failed to agree on gaming expansion in the state, though a special legislative session or a ballot measure could revive the development. Meanwhile, rival developer David Cordish, whose company opened the $500 million Maryland Live! earlier this month, has been lobbing verbal bombs at the project, which he fears could decimate his business.

MGM Resorts has other irons in the fire. The company is awaiting approval from the Macau government to build a resort the Cotai Strip; it is looking at Toronto; and it has publicly expressed interest in New York.

But can MGM Resorts, with $13.4 billion in debt and a $203.3 million first-quarter loss, simultaneously finance multiple projects?

It may take years before that question can be answered.

On the flip side, Las Vegas Sands is managing a corporate debt of $9.9 billion, but in the first quarter the company reported more than $1 billion in cash flow on top of more than $2.76 billion in net revenues. More than 80 percent of Las Vegas Sands' revenues come from Macau and Singapore.

"We have the financial capability to do a number of these deals," Las Vegas Sands President Michael Leven said confidently earlier this month. Besides Spain, the company is also interested in Toronto and New York.

Smaller casino companies, even those with minimal debt, face development obstacles.

Las Vegas-based Ameristar Casinos has $1.9 billion in debt, but Lerner questioned whether the regional operator is capable of building two separate resorts totaling $1 billion.

Ameristar is seeking a gaming license for western Massachusetts for a $500 million hotel-casino in Springfield while also moving forward with a $500 million hotel-casino in Lake Charles, La.

"We have some concerns about the company's ability to potentially juggle (multiple projects)," Lerner said. "I'm not sure their balance sheet could handle it."

Time will tell.


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