Friday, May 16, 2008

Where in the (financial) world is the Majestic Star

Here is a question I can't answer.... just how much of a box is Don Barden and the Majestic Star really in. The local news summarizes his financing as Up in the Air. It's a bit more complicated than that of course. At least the first part of his debt offering was oversubscribed as of Monday, which means more are offering $ than he needs. But additional tiers are being less well received. Here is what an industry source (Credit and Investment News) said last week:

The $370 million first-lien term loan for casino operator PITG Gaming was oversubscribed Monday after the discount was lowered to 94 cents on the dollar from an original issue discount of 96. The company's $250 million second-lien term loan was flexed to 92 from an OID of 96; but the tranche was only half subscribed by last Tuesday and having difficulty attracting investors, a portfolio manager looking at the deal said.

lead arranger Credit Suisse launched the first lien and second lien, along with a $100 million revolver, April 18. Pricing on the first lien was initially LIBOR plus 6% with a LIBOR floor of 3.25%. The second lien was priced at LIBOR plus 10% with the same floor. The loans are non-call for 18 months, after which there is hard-call protection of 102, 101. The financing backs the construction of the Majestic Star Casino in Pittsburgh, Pa. Jon Bennett, cfo and treasurer, did not return calls.

What does that mean? LIBOR +10% puts you at around 16% these days which is pretty unfavorable as these things go and remarkable when you go back and look at some of the early financial analysis of a casino license in Pittsburgh. This one assumed a cost of capital in the range of 6-10% and by 10% the profitability was getting pretty shaky. At 16%, there must be an implict assumption on Barden's part that he will refinance lower as soon as the prospects for a profitable operation are a little more secure. It may be a bit boring for many, but given how big a deal this all is in town, you would think there would be story just in these interest rates he is being forced to offer to get his financing. That's a huge issue all around even if he gets all the funding he is looking for.

Dire times ahead? Maybe, but my speculation is that this all comes under the GM rule at this point. While the casino may not be "too big to fail" in and of itself, the investment made into the Barden proposal makes it really too much to disappear completely at this point and leave the prospects for a casino here back at the starting gates... but....


Blogger Felix Dzerzhinsky said...

Chris: If you were a trustee of a public pension fund, would you invest $150 million in Don Barden's Pittsburgh casino plans? I wouldn't. But then again I'm no expert!

Friday, May 16, 2008 8:47:00 AM  
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Tuesday, May 20, 2008 12:47:00 PM  
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