Stingy credit markets test US casino projects

HARRISBURG — The troubled credit markets that are creating problems for home buyers and other borrowers also are disrupting the capital-intensive casino industry — driving up construction costs and delaying and even jeopardizing whole projects.

Two would-be casinos near Pittsburgh are seeking special treatment from gambling regulators on grounds of economic hardship.

And in Atlantic City, N.J., developers of the $2 billion Revel casino and hotel are seeking financial help from the city, which will consider floating bonds, and Pinnacle Entertainment Inc. is questioning whether the wisdom of borrowing money for its $1 billion-plus casino project on the site of the razed Sands Hotel Casino.

Casino companies have lost billions in market value. The falling share price of Penn National Gaming Inc. helped tank the nearly $6 billion purchase of one of the nation's largest casino companies by a private equity firm last week.

Indian casinos are not immune, either: The huge Foxwoods Resort Casino in Connecticut recently laid off workers because of rising gas and food prices.

Elsewhere, bankruptcies, rising construction costs and shrinking revenue are rattling an industry that some thought was impervious to downturns.

"I'd say operating fundamentals are pretty key here," said Craig Parmelee, lead debt analyst in Standard & Poor's tourism and gaming section. "It's been a particularly weak first half of the year for the casino industry, across virtually every market in the United States."

In Illinois, gambling revenue was down more than 20 percent in June compared to June 2007 — a result of the state's recent smoking ban and the soft economy, JP Morgan Chase & Co. said in a note.

Even on the Las Vegas strip revenue was down 3 percent in February through April.

The same numbers of people are showing up in casinos, but they are betting less at gambling tables and slot machines. Parmelee and Moody's Investors Service analyst Peggy Holloway said that caution reflects falling home prices and rising gas prices that are making people feel less wealthy.

In the last consumer-driven downturn, in 1990-91, gambling was still centered in Atlantic City and Nevada, Holloway and Parmelee noted.

Now, slot machines and card tables now can be found at commercial casinos and racetracks in about 20 states. Investors have no previous experience to guide them through a slump in this bigger industry, they said.

"Investors are very nervous that things could get a lot worse before they get better," Holloway said.

Difficulty getting cash on favorable terms could prove vexing for the industry, which relies on glitzy new offerings to attract gamblers who have gained more and more gambling options closer to home in recent years.

In Harrisburg on Thursday, the Pennsylvania Gaming Control Board will hold hearings on requests from the owners of the planned Majestic Star Casino in Pittsburgh and Valley View Downs racetrack and casino in Lawrence County, along the Ohio border.

Don Barden, the Detroit businessman who owns Fitzgeralds and Majestic Star casinos in four states, is trying to piece together a new financing plan for his $780 million project on Pittsburgh's North Shore. He will need the gaming board's approval of the new financing.

Barden also is seeking permission to put off promised parts of the project to offset rising capital and material costs. With steel already in the ground, the prime contractor has stopped work because Barden cannot pay the bills.

Indianapolis-based Centaur Inc. wants to build Valley View Downs racetrack and casino about 55 miles northwest of Pittsburgh and already holds a state harness-racing license. It is asking the gaming board to approve a conditional slots license for the $455 million facility that it says it must have by Tuesday or risk violating the terms of its loans and being forced to wade back into wary credit markets.

But the gaming board has not held a public hearing to determine whether Centaur meets the legal character requirements it imposed on previous licensees.

"We are working on an alternative right now," Kurt Wilson, Centaur's chief financial officer, said Tuesday. "But the outcome is unclear."

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