Kansas casino comes to halt - Business

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Nov. 18, 2008
Copyright © Las Vegas Review-Journal

Kansas casino comes to halt

Harrah's, partners can't get financing

By ARNOLD M. KNIGHTLY
LAS VEGAS REVIEW-JOURNAL

A Harrah's Entertainment-led partnership on Monday dropped plans to develop and operate a state-owned casino in south central Kansas.

The casino company blamed the "current economic conditions and the unprecedented disruption in the financial markets" for the decision not to proceed with plans to build the proposed $535 million resort, according to a statement.

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The statement said it "was impossible" to finance the project now.

Harrah's Vice Chairman Chuck Atwood said in August when the contract was awarded that the partnership was confident the project could get financed.

"The appeal of the project was helpful as we talked to lenders," Atwood said. "They recognize the project has a lot of appeal, so we're confident it can be financed."

The announcement comes less than three months after the state Lottery Gaming Facility Review Board chose Sumner Resorts-Harrah's Kansas by a 4-3 vote over proposals from Penn National Gaming and Marvel Gaming.

MGM Mirage withdrew its bid proposal in May.

Harrah's was awarded a 15-year management contract that calls for 22 percent of the casino's revenue to go to the state.

The proposed 175-room resort and neighboring golf course, which was scheduled to open in late 2010, was slated for Mulvane, a small town 15 miles south of Wichita and 150 miles north of Oklahoma City.

Also on Monday, Harrah's Entertainment said it offered a private exchange for some of its near-term debt to take advantage of depressed bond prices and free some equity.

The company hopes to issue $2.1 billion of new 10 percent notes due 2015 and 2018, pushing current maturity dates back at least five years.

Harrah's will also offer up to $325 million in cash for near-term maturities instead of notes.

The bonds involved in the offer are prioritized beginning with $2.1 billion worth of prebuyout notes maturing between 2010 and 2013, followed by $2.5 billion worth of notes maturing between 2015 and 2017. Notes maturing in 2016 and 2018 representing $6.8 billion worth of debt have lower priority.

KDP Investment Advisors bond analyst Barbara Cappaert said in a note to investors that Harrah's debt load could be reduced by $3 billion if the exchange is successful.

The bond exchange comes as Harrah's co-owner Apollo Management is trying to avoid default on Harrah's debt during an economic downturn that has hit casino companies hard.

"The idea is to get through a financial squeeze," Martin Fridson, chief executive officer of money management firm Fridson Investment Advisors in New York, told Bloomberg News.

Although the exchange would give the company more time on its debt obligations, it would have little effect on the company's cash flow and would still leave Harrah's heavily leveraged.

The company reported $24.1 billion in debt at the end of the third quarter on Sept. 30.

Harrah's spokeswoman declined to comment on the exchange, referring to the company's filing Monday with the Securities and Exchange Commission.

Private equity companies Apollo and TPG Capital purchased Harrah's and took it private this year.

Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or 702-477-3893.

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background. American Gaming Guru wrote on November 20, 2008 12:26 PM: The folks in Kansas should have selected a partnership with more at stake to begin with. Marvel Gaming (aka The Binion family) had the best proposal and was already well committed to the area. It would have been Binion's sole casino resort development and thus probably would have gone ahead. The big guy can not always deliver as Kansas betted. On the other hand they shunned an experienced group and well thought-out development proposal. We all know how well Jack Binion and his crew run great casinos! Sheldon Smith wrote on November 18, 2008 05:29 PM: Private equity firms are the ruin of our civilization, they siphon off capital and do nothing for the companies they buy! Harrahs management and directors got greedy and now they got $24B of debt! dt wrote on November 18, 2008 05:11 PM: its only a matter of time before the casinos will want a piece of the bailout hahahahha. No seriously. ex gambler wrote on November 18, 2008 01:56 PM: I have a better idea. Let's boycott the casinos for 1 week and watch these scumbags come begging us to come back with free offers. Make them pay, one way or another. Homer Wood wrote on November 18, 2008 10:59 AM: It is now time for Loveman and Jones to find another scam.It is also time for casino operators in Nevada to pony up and pay their fair share of taxes or get out of town. casinoconc wrote on November 18, 2008 10:52 AM: Nevada casinos need to cough up more money to the state. Up it from 6 percent to 8 percent. If it kills them, it kills them. Marky Mark wrote on November 18, 2008 10:48 AM: Some jurisdictions have nearly 60% taxes plus riverboat boarding fees, etc. Remember the mess that happened with the Harrah's partnership in New Orleans? They actually went bankrupt before the state finally reduced some of the taxes. Regardless, 22% isn't that obscene outside of Nevada. I think it's more of a red flag on Harrah's debt load and ability to borrow funds. I guess we won't be seeing that grand reinvention of the center strip anytime soon. Long live the IP! patrick wrote on November 18, 2008 10:12 AM: The man: I THINK Kansas is taking 22% of the GROSS revenues; its not entirely clear. In any event, of course you are right that it is absurd that casinos in Nevada fight about raising their taxes in Nevada the way they do, then FIGHT to get into jurisdictions where they have the PRIVILEGE of paying LOTS more. the man wrote on November 18, 2008 09:48 AM: Willing to give the state 22% of its profits ?? And here in Las Vegas they say 6% is killing them?? Who is the math genius here??