By Chad Halcom and Nancy Kaffer
Two Detroit casinos are rolling snake eyes in the debt market.
A top ratings service downgraded its outlook for MotorCity Casino's parent company, citing a host of financial concerns. Greektown Holdings L.L.C. has until the end of this week to submit a reorganization plan that can resolve its swelling debts without need for a sale.
An agreement entered in U.S. Bankruptcy Court last month between the troubled Greektown Casino owners and its creditors gives the parties until Feb. 1 to submit a “co-exclusive” plan to restructure and settle its debts.
In other words, if the casino company doesn't submit a plan — with the consent of as many bondholders and other litigants as possible — by the deadline, creditors can submit restructuring plans of their own.
The Detroit City Council expects to meet today in a closed session with its Law Department and Chicago-based law firm Shefsky & Froelich Ltd. to review confidential new documents in the ongoing bankruptcy case, in which Detroit is a party.
A deputy press secretary for Detroit Mayor Ken Cockrel Jr. said he believes Greektown will submit a plan by week's end, but an attorney for the casino's creditors said there it might be “difficult” to craft a complete plan with all parties' consent by the deadline.
As late as last week, involved parties were discussing the shape of a reorganization plan, said Robert Gordon of Detroit-based Clark Hill P.L.C. and attorney for Greektown's unsecured creditors' committee.
Greektown, majority-owned by the Sault Ste. Marie Tribe of Chippewa Indians, and the creditors have also had to discuss a few preliminary offers to buy the casino and its assets, which came in earlier this month as part of the proceedings, Gordon said.
“There still has to be some digestion of the proposals that have come in,” he said. “That's why I think there's going to be some possible difficulty or delay in crafting a full plan before the deadline.”
Marian Ilitch-owned MotorCity's fiscal woes were enumerated in a statement posted on Moody's Investors Services' Web site, announcing the downgrade of parent company CCM Merger Inc.'s outlook to negative.
Last fall, CCM owners contributed $25 million in cash equity to enable the business to meet its September debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio. Moody's analysts warn that another equity infusion might be required for CCM to meet its year-end debt-to-EBITDA ratio.
CCM's debt limit is currently seven times EBITDA, according to Moody's, but that ratio could increase in 2009 because of a drop in gaming revenue — down 11 percent in December — that could offset earnings from the casino's expansion and lead to negative cash flow.
CCM's owners would have to ask to amend its lending covenants to increase its debt-to-EBITDA ratio or risk becoming noncompliant, according to Moody's.
Greektown may have its work cut out in proving it can resolve debts as it faces falling revenue and lost market share. A 2008 revenue and tax collection report prepared by the Michigan Gaming Control Board shows that revenue fell for all three casinos in December, with Greektown's dropping 12 percent.
MotorCity ended 2008 with $464 million in revenue, compared with $480 million in 2007. Greektown finished with $316 million compared with $341 million last year.
“Nothing before us suggests the industry isn't still solvent. The casinos as a whole showed 1.8 percent revenue growth over the previous year,” said Rick Kalm, the Gaming Control Board's executive director.
Edward Gudeman, president and managing partner of bankruptcy law firm Weik & Associates P.C. in Royal Oak, said Greektown's ability to control its own future likely comes down to showing an ability to make a profit on operations — exclusive of debt.
“If they can't show that in the plan, or the plan fails to execute, the case could be converted to Chapter 7 and be forced to sell,” he said.
Greektown sought bankruptcy protection in May, citing at least $243 million in unsecured debt to 40 unsecured creditors, and has since gained regulatory approval from the Gaming Board to borrow another $100 million more.
A new hotel is expected to open in a newly built tower along Monroe Street next month.
Chad Halcom: (313) 446-6796, firstname.lastname@example.org
Nancy Kaffer: (313) 446-0412, email@example.com