Making the News

Memphis Daily News

Originally Published:Tuesday, November 25, 2008

“We're seeing more duct tape in casino carpet these days than we have seen in a long time,” said Joseph Weinert, senior vice president of Spectrum Gaming Group, an international research and professional services firm for the industry.

Besides the acquisitions of recent years, casino companies have amassed debt building new properties and revamping them to keep up with competitors, Weinert said.

“This is impacting companies big and small,” he said. “A gaming property of any size is an expensive endeavor. It's not like opening up a McDonald's, which doesn't require a lot of capital. As such, these casino companies go to the debt markets for help. For years Wall Street opened its arms wide because gaming was an excellent investment. However, when consumers tighten their wallets, the revenues have slowed down.”


Fitzgerald's Parent Company on Shaky Ground

By Tom Wilemon
Memphis Daily News

Majestic Star Casino LLC, the company that owns Fitzgerald's Casino in Tunica, is in dire financial straits, according to statements it issued last week.

The company said it might have to reorganize or sell off its assets.

In its quarterly report filing with the U.S. Securities and Exchange Commission, Majestic Star warned that it is in default on its debt and losing money.

"These factors raise substantial doubt about the company's ability to continue as a going concern," the company said in the filing.

The economic downturn is hitting casino companies hard, especially those with heavy debt loads like Majestic Star.

"We're seeing more duct tape in casino carpet these days than we have seen in a long time," said Joseph Weinert, senior vice president of Spectrum Gaming Group, an international research and professional services firm for the industry.

Financial planning

Harrah's Entertainment, which owns three casinos in the Tunica market, is trying to reshuffle its debt. The stock of Boyd Gaming Corp., the owner of Sam's Town, hit a new low last week. MGM Mirage, the parent company of Gold Strike, announced Friday it was freezing plans to build a new property in Macau.

Majestic Star announced last week that it had retained Goldman, Sachs & Co. to evaluate options for the company's future.

"These alternatives may include a recapitalization, refinancing, restructuring or reorganization of the company's obligations or a sale of some or all of its assets," the company said in a press release.

Majestic Star failed to make a $24 million interest payment on debt totaling $571.3 million last month.

"The trustee or a specified percentage of holders of the notes have the right to accelerate the maturity date of the respective notes, which would cause the respective notes to be immediately due and payable and could result in all of the company's indebtedness becoming immediately due and payment," the company said in the SEC filing.

Majestic Star Casino had an operating loss of $36.4 million for the three-month period ending Sept. 30, compared to an $8.2 million profit for the same period a year ago. Its Tunica property had a $94,000 loss compared to a $1.4 million profit from the same period a year ago.

The greatest gamble

Casino revenues have continued to fall. Revenue for casinos in Tunica and other counties along the Mississippi River during October were $114.3 million, compared to $120.3 million for the same period a year ago, according to a report issued last week by the Mississippi Gaming Commission.

Majestic Star is not the only casino company in the Tunica market with debt problems. Harrah's Entertainment, which owns three casinos in Tunica, announced last week that it was seeking to refinance its debt. Standard & Poor's reacted by slashing the company's rating five notches. Reuters quoted the rating agency as saying the offer was "tantamount to default." Bloomberg Press reported that the company was trying to "push back maturities and avoid default."

Harrah's Entertainment owes several billion dollars. Apollo Global Management LLC and TPG Capital LP acquired much of that debt through the $30.7 billion buyout of the company in January. Harrah's had added to its debt two years prior with its acquisition of Caesars Entertainment Inc.

Besides the acquisitions of recent years, casino companies have amassed debt building new properties and revamping them to keep up with competitors, Weinert said.

"This is impacting companies big and small," he said. "A gaming property of any size is an expensive endeavor. It's not like opening up a McDonald's, which doesn't require a lot of capital. As such, these casino companies go to the debt markets for help. For years Wall Street opened its arms wide because gaming was an excellent investment. However, when consumers tighten their wallets, the revenues have slowed down."

Penn National Gaming, the parent company of Hollywood Casino in Tunica, is better poised to weather the economic downtown than many of its competitors. One reason is a private buyout of the company fell through.

"They may be in a position to acquire some assets at relatively good prices," Weinert said.

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