Tuesday, April 29, 2008

In a Foul Moody

I believe that I have been pretty consistent in my opposition to the Casino, any casino, in the City of Pittsburgh. In the long run, I think, the City is going to have to bear the brunt of a whole lot of negative externalities (traffic, crime, gambling/drug/alcohol addictions etc.), which were no countedt/will not be counted in the Financial Statements of PITG Gaming.

What profiteth a man that he gains $169 in tax relief but loseth his car stereo system to crack addled gambling addicts?*
And so on.

Actually, what would be worse (if there is such a thing as worse in this scenario) is a failed Casino in Pittsburgh. Apparently, both Moody's and Standard Poor's are a bit nervous that PITG is a big ol' dud. From Moody's:
The agency also assigned a 'B3' probability of default rating to the company and a 'Ba3' rating was assigned to its $10 million first lien three-year revolving credit facility and $370 million first lien three-year term loan, while a 'Caa1' was assigned to its $250 million second lien three-year credit facility.

Moody's added the rating outlook is stable, on hopes the Majestic Star Casino Pittsburgh casino project will be constructed on time and on budget, and that favourable demographics of the Pittsburgh gaming market along with the location of the casino itself will provide enough customer traffic and demand for PITG to ramp up successfully.

The stable rating outlook also considers the credit protection afforded by the interest reserves and construction contingencies that will be in place, Moody's added.
A Caa1 rating, by the way, is just slightly above the CaCa rating, which means that the company is full of crap.**

And from Standard Poor's:
The ratings agency has also assigned its ratings to PITG HoldCo's proposed $380 million senior secured first-lien credit facility, consisting of a $10 million revolving credit and a $370 million term loan, both due in 2011. The first-lien facility is rated 'B' with a recovery rating of '2', indicating the expectation for substantial (70-90 percent) recovery of principal in the event of a payment default.

S&P said it also rated the company's proposed $250 million senior secured second-lien term loan due 2011 'CCC' with a recovery rating of '6', indicating the expectation for negligible (0-10 percent) recovery.

The 'B-' corporate credit rating reflects the significant fixed-charge burden for the property, given the proposed financing structure that includes no cash equity and construction and start-up risks associated with the planned facility, among other factors, S&P said.
So, of course, you can see why Barden wanted to get out of his $3 Million commitment to the Hill District: he's going to need that money to pay off his debt service.

Now, while I'm sure that both S&P and Moody's have done their homework, there are a whole slew of issues that may still hold up the construction of the actual casino (including, but not limited to, the City Planning process, the Riverlife Taskforce Lawsuit, opposition from Northside Residents, and increasing construction costs). Considering that Barden has none (to repeat: NONE) of his own money in this project, and is solely relying on outside investment, I would worry that any increase in construction costs/delays in construction will just cause his interest expense on the project to balloon out of control. That doesn't even take into consideration the demand that may or may not materialize for slots only gambling or the competition that the Casino will have from West Virginia (who have table games now, apparently.)

So the scary thing right now is that Pittsburgh may end up with a cut rate casino that makes into, not a high class Las Vegas, but a cruddier version of Atlantic City.

* Doug 4:19 1/2
** This is not true.


Bram Reichbaum said...

"opposition from Northside Residents..."

No, I don't think you're going to see that.

"So the scary thing right now is that Pittsburgh may end up with a cut rate casino that makes into, not a high class Las Vegas, but a cruddier version of Atlantic City."

That was my original understanding of *all* American casinos outside of Las Vegas. Still, we want at least a fundamentally *successful* Wheeling Island.

Anonymous said...

A two story slots only 'casino' would - at best - be equal to or worse than the worst Atlantic City has to offer.

Good luck with all that Pittsburgh