According to various news accounts, the latest revenue results released by the Michigan Gaming Control Board (MGCB), indicate the overall gaming market in Detroit saw a 4.2% decline in May; however, Greektown Casino-Hotel appears to have bucked the trend for the fourth month in a row with a stunning 7.2% year-over-year revenue increase for the month. (At the time of this post, Data had yet to be posted to the MGCB web site.)
Greektown was the only Detroit casino to see an increase, while revenues at MGM Grand Detroit and MotorCity Casino dropped 10.9% and 3.6% respectively.
It should be noted that Greektown in particular has struggled financially in recent years and in May 2008 filed for bankruptcy protection. So, bragging rights about revenue growth at Greektown in May 2009 as compared to May 2008 should be tempered. May 2008 represented perhaps the lowest point in Greektown's financial health.
Despite a major renovation at MotorCity Casino including the addition off theaters, conference and restaurant amenities, and a 400-room luxury hotel, it has generally failed to meet financial expectations since Marian Ilitch acquired control of the property from MGM Mirage in 2005. Both Moody's and Standard & Poor's have now established a steady pattern of declining credit ratings for MotorCity's financial parent during this period.
Among numerous other affiliates, Ilitch controls CCM Merger, Inc. which is the highly leveraged financial parent of Detroit Entertainment LLC (DELLC) which is the entity that does business as (dba) MotorCity Casino. In December 2008, CCM Merger broke its financial convenants and as a result, investors demanded Marian Ilitch inject $45 million cash into the enterprise.
Financial results published by MGCB
Showing posts with label Standard Poor's. Show all posts
Showing posts with label Standard Poor's. Show all posts
Thursday, June 11, 2009
Friday, February 06, 2009
To calm casino investors Ilitch forced to pony up $45 million cash injection
2.06.09Motor City Adds More Equity; Deal Passes
An amendment for Motor City Casino passed last Tuesday after a game of tug-of-war between investors and the company. The two reached an agreement when Motor City parent company CCM Merger committed to a $45 million equity injection.
Deutsche Bank launched the amendment Jan. 13, and investors balked when the company asked for loosened leverage covenants but CCM, a vehicle of Detroit Red Wings owner Marian Ilitch, did not offer to put equity into the deal (CIN, 1/19). CCM then came back to investors with a $20 million equity injection offer.
"It was a non-starter," said one investor. "[The $45 million] is what got the deal done. Everything else was secondary to that."
The pricing on the facility was raised 300 basis points to LIBOR plus 5 1/2%, and a LIBOR floor of 3% was added.
A spokeswoman for the Detroit-based company declined comment, and a spokeswoman for Ilitch Holdings, the parent company of CCM did not return a call.
Tuesday, January 27, 2009
Ilitch offers another $20M influx for MotorCity if investors will loosen up lending convenants
1.26.09
Red Wings’ Ilitch Offers More Cash to Appease MotorCity Lenders
By Pierre Paulden and Michael J. Moore
Jan. 26 (Bloomberg) -- Marian Ilitch, the owner of the National Hockey League’s Detroit Red Wings, offered to pump $20 million into her MotorCity Casino to obtain a loan amendment as gambling revenue falls.
Ilitch made the proposal after Credit Suisse AG’s asset management arm, Highland Capital Management LP and other investors asked her to invest more funds in the property because it’s at risk of violating terms of a $606 million loan, according to investors with knowledge of the situation. Lenders had threatened to raise the interest on the loan to 18 percent a year if she didn’t, said the investors, who declined to be identified because the talks are private.
MotorCity, owned by Ilitch’s closely held CCM Merger Inc., is a victim of the slump in Detroit, home to General Motors Corp. and Ford Motor Co., and the nationwide decline in gambling profits. Gaming revenue at the 400-room hotel and casino tumbled 7.1 percent in November and 11 percent in December from a year earlier, according to Moody’s Investors Service.
“If they don’t get the amendment, they could be in default,” said Keith Foley, a Moody’s analyst in New York. “The amendment is something that they need.”
CCM also offered to increase the interest rate on the loan to either 8.5 percent or 5.5 percentage points more than the London interbank offered rate, whichever is higher, according to the investors. In return, the company is seeking relaxed loan terms through the second quarter of 2011, after previously asking for covenant relief until the loan matures in July 2012. Standard & Poor’s LCD reported the offer earlier today.
Should CCM fail to reach an agreement, it may lose access to a $100 million credit line that it needs to pay a $50 million Economic Development Corp. bond in May, according to Foley. CCM already invested $25 million of equity in September, he said.
Falling Prices
The casino’s term loan due in 2012 was quoted at 42 cents on the dollar, according to a Jan. 20 report from Frankfurt- based Deutsche Bank AG. Its $300 million of 8 percent bonds due in 2013 trade at 55.6 cents on the dollar to yield 25 percent, according to prices compiled by Bloomberg.
“MotorCity Casino’s parent company is in the process of negotiating changes to its credit agreement to bring the financial covenants that were set in 2005 to levels consistent with those already in place for other gaming operators across the United States,” Jacci Woods, a MotorCity spokeswoman, said last week.
Woods declined to comment on details of the talks. Karen Cullen, a spokeswoman for Ilitch Holdings, didn’t return a call seeking comment today.
Declining Markets
Creditors are requiring increased rates from borrowers deemed high-yield, high-risk, and in jeopardy of breaking debt agreements after the so-called leveraged loan market lost 29 percent last year. Companies rated below Baa3 by Moody’s and BBB-by S&P are considered high-yield, or junk.
Borrowers paid an average 1.64 percentage points more in interest last year to amend borrowing agreements needed to avoid default, according to S&P’s LCD data as of September.
Ilitch, who was born in 1933 to Macedonian immigrant parents, is the wife of Michael Ilitch, the 79-year-old owner of Major League Baseball’s Detroit Tigers. The two co-founded closely held pizza chain Little Caesar Enterprises Inc.
CCM used the bonds and loans to buy the 75 percent stake in MotorCity in April 2005 that Ilitch didn’t already own from Las Vegas-based Mandalay Resort Group and other investors. MotorCity opened the hotel in November 2007, adding to the 75,000-square- foot casino.
Debt Burden
Debt rose to about 7 times earnings before interest, taxes, depreciation and amortization from 6.1 times in December as gambling revenue fell amid the economic slowdown, according to a Jan. 16 report by Foley. Terms of the loan require the ratio not exceed 6.1, and the limit will tighten to 5.9 times this quarter, he wrote in a December report.
Casinos across the U.S. are suffering as consumers cut spending in the recession. Revenue on the Las Vegas Strip, the biggest U.S. gambling center, slid 9.3 percent in the first 11 months of 2008 and was poised for its biggest annual drop since data started being compiled in the mid-1980s, the Nevada Gaming Control Board said. Casino revenue in Atlantic City, New Jersey, tumbled a record 19 percent in December, the New Jersey Casino Control Commission said.
Trump Entertainment Resorts Inc., founded by developer Donald Trump, is negotiating a debt restructuring after the Atlantic City, New Jersey-based casino owner skipped a $53 million interest payment that was due Dec. 1.
Detroit’s Declines
Detroit is facing more job losses than the rest of the country after U.S. auto sales tumbled 18 percent last year. Unemployment for the metropolitan area was 9.5 percent in November, up from 7.6 percent a year earlier, data compiled by the Bureau of Labor Statistics show. The national average was 6.7 percent that month.
U.S. automakers are also suffering as the car industry in Europe declines. New car registrations in the European Union fell 18.2 percent in December, according to a Jan. 15 report from the European Automobile Manufacturers Association in Brussels.
“Historically, even with the high unemployment rate, Detroit had done okay on a relative sense,” Foley said. “But November and December numbers, there was a sharp drop-off.”
Deutsche Bank, which arranged the MotorCity loan in 2005, proposed Jan. 13 that CCM increase interest payments to a minimum of 7.75 percent or 5 percentage points more than Libor when Libor exceeds 2.75 percent. CCM currently pays 2 percentage points more than Libor, which ended last week at 1.17 percent.
Increasing Ratios
CCM offered to pay a fee of 50 basis points to lenders if they agreed to the change, according to S&P’s LCD, which reported the proposal earlier this month. A basis point is 0.01 percentage point. In exchange, the debt-to-earnings ratio would be increased to 8 times, S&P’s LCD said, without saying where it got the information.
A majority of the investors rejected the offer and asked Ilitch to inject additional cash into the casino, said the investors, who declined to be identified.
Dallas-based Highland, Credit Suisse of Zurich and other lenders said that without more equity, Ilitch must pay annual interest of 18 percent or 15 percentage points more than Libor, whichever is higher, according to the investors. The interest would be split between cash and payment-in-kind, they said.
Credit Suisse spokeswoman Suzanne Fleming, Highland partner Jack Yang and Deutsche Bank spokesman Scott Helfman declined to comment.
To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net ; Michael J. Moore in New York at mmoore55@bloomberg.net.
By Pierre Paulden and Michael J. Moore
Jan. 26 (Bloomberg) -- Marian Ilitch, the owner of the National Hockey League’s Detroit Red Wings, offered to pump $20 million into her MotorCity Casino to obtain a loan amendment as gambling revenue falls.
Ilitch made the proposal after Credit Suisse AG’s asset management arm, Highland Capital Management LP and other investors asked her to invest more funds in the property because it’s at risk of violating terms of a $606 million loan, according to investors with knowledge of the situation. Lenders had threatened to raise the interest on the loan to 18 percent a year if she didn’t, said the investors, who declined to be identified because the talks are private.
MotorCity, owned by Ilitch’s closely held CCM Merger Inc., is a victim of the slump in Detroit, home to General Motors Corp. and Ford Motor Co., and the nationwide decline in gambling profits. Gaming revenue at the 400-room hotel and casino tumbled 7.1 percent in November and 11 percent in December from a year earlier, according to Moody’s Investors Service.
“If they don’t get the amendment, they could be in default,” said Keith Foley, a Moody’s analyst in New York. “The amendment is something that they need.”
CCM also offered to increase the interest rate on the loan to either 8.5 percent or 5.5 percentage points more than the London interbank offered rate, whichever is higher, according to the investors. In return, the company is seeking relaxed loan terms through the second quarter of 2011, after previously asking for covenant relief until the loan matures in July 2012. Standard & Poor’s LCD reported the offer earlier today.
Should CCM fail to reach an agreement, it may lose access to a $100 million credit line that it needs to pay a $50 million Economic Development Corp. bond in May, according to Foley. CCM already invested $25 million of equity in September, he said.
Falling Prices
The casino’s term loan due in 2012 was quoted at 42 cents on the dollar, according to a Jan. 20 report from Frankfurt- based Deutsche Bank AG. Its $300 million of 8 percent bonds due in 2013 trade at 55.6 cents on the dollar to yield 25 percent, according to prices compiled by Bloomberg.
“MotorCity Casino’s parent company is in the process of negotiating changes to its credit agreement to bring the financial covenants that were set in 2005 to levels consistent with those already in place for other gaming operators across the United States,” Jacci Woods, a MotorCity spokeswoman, said last week.
Woods declined to comment on details of the talks. Karen Cullen, a spokeswoman for Ilitch Holdings, didn’t return a call seeking comment today.
Declining Markets
Creditors are requiring increased rates from borrowers deemed high-yield, high-risk, and in jeopardy of breaking debt agreements after the so-called leveraged loan market lost 29 percent last year. Companies rated below Baa3 by Moody’s and BBB-by S&P are considered high-yield, or junk.
Borrowers paid an average 1.64 percentage points more in interest last year to amend borrowing agreements needed to avoid default, according to S&P’s LCD data as of September.
Ilitch, who was born in 1933 to Macedonian immigrant parents, is the wife of Michael Ilitch, the 79-year-old owner of Major League Baseball’s Detroit Tigers. The two co-founded closely held pizza chain Little Caesar Enterprises Inc.
CCM used the bonds and loans to buy the 75 percent stake in MotorCity in April 2005 that Ilitch didn’t already own from Las Vegas-based Mandalay Resort Group and other investors. MotorCity opened the hotel in November 2007, adding to the 75,000-square- foot casino.
Debt Burden
Debt rose to about 7 times earnings before interest, taxes, depreciation and amortization from 6.1 times in December as gambling revenue fell amid the economic slowdown, according to a Jan. 16 report by Foley. Terms of the loan require the ratio not exceed 6.1, and the limit will tighten to 5.9 times this quarter, he wrote in a December report.
Casinos across the U.S. are suffering as consumers cut spending in the recession. Revenue on the Las Vegas Strip, the biggest U.S. gambling center, slid 9.3 percent in the first 11 months of 2008 and was poised for its biggest annual drop since data started being compiled in the mid-1980s, the Nevada Gaming Control Board said. Casino revenue in Atlantic City, New Jersey, tumbled a record 19 percent in December, the New Jersey Casino Control Commission said.
Trump Entertainment Resorts Inc., founded by developer Donald Trump, is negotiating a debt restructuring after the Atlantic City, New Jersey-based casino owner skipped a $53 million interest payment that was due Dec. 1.
Detroit’s Declines
Detroit is facing more job losses than the rest of the country after U.S. auto sales tumbled 18 percent last year. Unemployment for the metropolitan area was 9.5 percent in November, up from 7.6 percent a year earlier, data compiled by the Bureau of Labor Statistics show. The national average was 6.7 percent that month.
U.S. automakers are also suffering as the car industry in Europe declines. New car registrations in the European Union fell 18.2 percent in December, according to a Jan. 15 report from the European Automobile Manufacturers Association in Brussels.
“Historically, even with the high unemployment rate, Detroit had done okay on a relative sense,” Foley said. “But November and December numbers, there was a sharp drop-off.”
Deutsche Bank, which arranged the MotorCity loan in 2005, proposed Jan. 13 that CCM increase interest payments to a minimum of 7.75 percent or 5 percentage points more than Libor when Libor exceeds 2.75 percent. CCM currently pays 2 percentage points more than Libor, which ended last week at 1.17 percent.
Increasing Ratios
CCM offered to pay a fee of 50 basis points to lenders if they agreed to the change, according to S&P’s LCD, which reported the proposal earlier this month. A basis point is 0.01 percentage point. In exchange, the debt-to-earnings ratio would be increased to 8 times, S&P’s LCD said, without saying where it got the information.
A majority of the investors rejected the offer and asked Ilitch to inject additional cash into the casino, said the investors, who declined to be identified.
Dallas-based Highland, Credit Suisse of Zurich and other lenders said that without more equity, Ilitch must pay annual interest of 18 percent or 15 percentage points more than Libor, whichever is higher, according to the investors. The interest would be split between cash and payment-in-kind, they said.
Credit Suisse spokeswoman Suzanne Fleming, Highland partner Jack Yang and Deutsche Bank spokesman Scott Helfman declined to comment.
To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net ; Michael J. Moore in New York at mmoore55@bloomberg.net.
Monday, January 26, 2009
MotorCity Lenders Call on Red Wings’ owner Ilitch for Cash
1.26.09
By Pierre Paulden and Michael J. Moore
Jan. 26 (Bloomberg) -- Marian Ilitch, the owner of the National Hockey League’s Detroit Red Wings, is facing calls from lenders to pump more money into her MotorCity Casino or pay an almost sixfold increase in interest as gambling revenue falls.
Credit Suisse AG’s asset management arm, Highland Capital Management LP and other investors told Ilitch to boost capital in the property because it’s at risk of violating terms of a $606 million loan, according to investors with knowledge of the situation. If she doesn’t, lenders may raise the interest on the loan to 18 percent a year, said the investors, who declined to be identified because the talks are private.
MotorCity, owned by Ilitch’s closely held CCM Merger Inc., is a victim of the slump in Detroit, home to General Motors Corp. and Ford Motor Co., and the nationwide decline in gambling profits. Gaming revenue at the 400-room hotel and casino tumbled 7.1 percent in November and 11 percent in December from a year earlier, according to Moody’s Investors Service.
“If they don’t get the amendment, they could be in default,” said Keith Foley, a Moody’s analyst in New York. “The amendment is something that they need.”
Should CCM fail to reach an agreement, it may lose access to a $100 million credit line that it needs to pay a $50 million Economic Development Corp. bond in May, according to Foley. CCM already invested $25 million of equity in September, he said.
Falling Prices
The casino’s term loan due in 2012 was quoted at 42 cents on the dollar, according to a Jan. 20 report from Frankfurt-based Deutsche Bank AG. Its $300 million of 8 percent bonds due in 2013 trade at 55.6 cents on the dollar to yield 25 percent, according to prices compiled by Bloomberg.
“MotorCity Casino’s parent company is in the process of negotiating changes to its credit agreement to bring the financial covenants that were set in 2005 to levels consistent with those already in place for other gaming operators across the United States,” said Jacci Woods, a MotorCity spokeswoman.
Woods declined to comment on details of the talks. Karen Cullen, a spokeswoman for Ilitch Holdings, referred questions to MotorCity.
Creditors are requiring increased rates from borrowers deemed high-yield, high-risk, and in jeopardy of breaking debt agreements after the so-called leveraged loan market lost 29 percent last year. Companies rated below Baa3 by Moody’s and BBB- by Standard & Poor’s are considered high-yield, or junk.
Borrowers paid an average 1.64 percentage points more in interest last year to amend borrowing agreements needed to avoid default, according to Standard & Poor’s LCD data as of September.
Tigers, Little Caesar
Ilitch, who was born in 1933 to Macedonian immigrant parents, is the wife of Michael Ilitch, the 79-year-old owner of Major League Baseball’s Detroit Tigers. The two co-founded closely held pizza chain Little Caesar Enterprises Inc.
CCM used the bonds and loans to buy the 75 percent stake in MotorCity in April 2005 that Ilitch didn’t already own from Las Vegas-based Mandalay Resort Group and other investors. MotorCity opened the hotel in November 2007, adding to the 75,000-square- foot casino.
Debt rose to about 7 times earnings before interest, taxes, depreciation and amortization from 6.1 times in December as gambling revenue fell amid the economic slowdown, according to a Jan. 16 report by Foley. Terms of the loan require the ratio not exceed 6.1, and the limit will tighten to 5.9 times this quarter, he wrote in a December report.
Casino Revenue
Casinos across the U.S. are suffering as consumers cut spending in the recession. Revenue on the Las Vegas Strip, the biggest U.S. gambling center, slid 9.3 percent in the first 11 months of 2008 and was poised for its biggest annual drop since data started being compiled in the mid-1980s, the Nevada Gaming Control Board said. Casino revenue in Atlantic City, New Jersey, tumbled a record 19 percent in December, the New Jersey Casino Control Commission said.
Trump Entertainment Resorts Inc., founded by developer Donald Trump, is negotiating a debt restructuring after the Atlantic City, New Jersey-based casino owner skipped a $53 million interest payment that was due Dec. 1.
Detroit is facing more job losses than the rest of the country after U.S. auto sales tumbled 18 percent last year. Unemployment for the metropolitan area was 9.5 percent in November, up from 7.6 percent a year earlier, data compiled by the Bureau of Labor Statistics show. The national average was 6.7 percent that month.
U.S. automakers are also suffering as the car industry in Europe declines. New car registrations in the European Union fell 18.2 percent in December, according to a Jan. 15 report from the European Automobile Manufacturers Association in Brussels.
Detroit’s Deterioration
“Historically, even with the high unemployment rate, Detroit had done okay on a relative sense,” Foley said. “But November and December numbers, there was a sharp drop-off.”
Deutsche Bank, which arranged the MotorCity loan in 2005, proposed Jan. 13 that CCM increase interest payments to a minimum of 7.75 percent or 5 percentage points more the London interbank offered rate when Libor exceeds 2.75 percent. CCM currently pays 2 percentage points more than Libor, which ended last week at 1.17 percent.
CCM offered to pay a fee of 50 basis points to lenders if they agreed to the change, according to S&P’s LCD, which reported the proposal earlier this month. A basis point is 0.01 percentage point. In exchange, the debt-to-earnings ratio would be increased to 8 times, S&P’s LCD said, without saying where it got the information.
A majority of the investors rejected the offer and asked Ilitch to inject additional cash into the casino, said the investors, who declined to be identified.
Dallas-based Highland, Credit Suisse of Zurich and other lenders said that without more equity, Ilitch must pay annual interest of 18 percent or 15 percentage points more than Libor, whichever is higher, according to the investors. The interest would be split between cash and payment-in-kind, they said.
Credit Suisse spokeswoman Suzanne Fleming, Highland partner Jack Yang and Deutsche Bank spokesman Scott Helfman declined to comment.
To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net.
Last Updated: January 26, 2009 05:42 EST
Friday, December 26, 2008
Under Ilitch ownership, MotorCity Casino's credit ratings continue to drop
Standard & Poor’s corporate credit ratings for MotorCity Casino (CCM Merger, Inc.) have continued a negative slide since Marian Ilitch took control of the Detroit gambling hall from Mandalay Resort Group/MGM Mirage in April 2005. This despite Ilitch’s $300 million remodel and expansion of the property which added square feet to the gaming floor and a 400-room, 17-story hotel with amenities; and the relative success of the MGM Grand Detroit Casino.
While MotorCity Casino was controlled and managed by Mandalay Resort Group its corporate credit rating was “B+.” A year after Marian Ilitch (CCM Merger, Inc.) took over complete ownership and management of MotorCity Casino, analysts at Standard & Poor’s dropped the credit rating to “B” and at times assigned a negative outlook.
Analysts had originally been told to anticipate some consistent upswing in revenues and a corresponding decrease in debt ratios with the larger gaming floor and the hotel addition; but instead, MotorCity Casino has failed to produce a greater revenue stream and its debt ratios are questionable.
In September, Standard & Poor’s assigned a negative outlook to MotorCity Casino (CCM Merger, Inc.). And then earlier this month, Standard & Poor’s again dropped MotorCity Casino’s credit rating to a "B-" and assigned a negative ratings outlook. Among other concerns, Standard & Poor’s has discovered declining cash flow at MotorCity Casino.
Standard & Poor’s defines these ratings as having significant speculative risk but suggests an entity with a “B” rating generally has the capacity to meet its financial commitments. But with a "B-" rating and a negative outlook assigned, Standard & Poor’s suggests any further adverse business, financial or economic conditions will likely impair MotorCity Casino’s capacity or willingness to meet its financial commitment.
According to the Securities & Exchange Commission (SEC), of those entities Standard & Poor’s assigns a “B” rating, 35.76% experience default; and of those with a rating of “CCC,” the next ratings step down from “B” ratings, 54.38% experience default.
In acquiring MotorCity Casino and completing its expansion and remodel, Marian Ilitch (CCM Merger, Inc.) has reportedly amassed approximately $1 billion of debt.
While MotorCity Casino was controlled and managed by Mandalay Resort Group its corporate credit rating was “B+.” A year after Marian Ilitch (CCM Merger, Inc.) took over complete ownership and management of MotorCity Casino, analysts at Standard & Poor’s dropped the credit rating to “B” and at times assigned a negative outlook.
Analysts had originally been told to anticipate some consistent upswing in revenues and a corresponding decrease in debt ratios with the larger gaming floor and the hotel addition; but instead, MotorCity Casino has failed to produce a greater revenue stream and its debt ratios are questionable.
In September, Standard & Poor’s assigned a negative outlook to MotorCity Casino (CCM Merger, Inc.). And then earlier this month, Standard & Poor’s again dropped MotorCity Casino’s credit rating to a "B-" and assigned a negative ratings outlook. Among other concerns, Standard & Poor’s has discovered declining cash flow at MotorCity Casino.
Standard & Poor’s defines these ratings as having significant speculative risk but suggests an entity with a “B” rating generally has the capacity to meet its financial commitments. But with a "B-" rating and a negative outlook assigned, Standard & Poor’s suggests any further adverse business, financial or economic conditions will likely impair MotorCity Casino’s capacity or willingness to meet its financial commitment.
According to the Securities & Exchange Commission (SEC), of those entities Standard & Poor’s assigns a “B” rating, 35.76% experience default; and of those with a rating of “CCC,” the next ratings step down from “B” ratings, 54.38% experience default.
In acquiring MotorCity Casino and completing its expansion and remodel, Marian Ilitch (CCM Merger, Inc.) has reportedly amassed approximately $1 billion of debt.
You may also want to review these other recent related posts:
Wednesday, December 24, 2008
S&P's fundamental outlook on the gaming industry is negative
12.04.08
Chancy Times for Casino Companies
S&P's fundamental outlook on the gaming industry is negative, as big players like MGM Mirage and Las Vegas Sands grapple with economic weakness and heavy debt
S&P's fundamental outlook on the gaming industry is negative, as big players like MGM Mirage and Las Vegas Sands grapple with economic weakness and heavy debt
By Esther Kwon
From Standard & Poor's Equity Research
From Standard & Poor's Equity Research
Based on research done during a recent visit to Las Vegas, Standard & Poor's Equity Research's fundamental outlook for the casinos and gaming industry continues to be negative.
Though the private equity boom in the sector led to significantly higher valuations, we see high debt loads compounding difficulties from economic weakness. Debt-to-EBITDA ratios for casino/gaming companies that file public financial information with the Securities & Exchange Commission rose to 7.5 in the 12 months ended June 30, 2008 from 4.5 in 2002, according to Standard & Poor's Credit Market Services, which operates independently of Standard & Poor's Equity Research Services.
With cash flows declining, debt-burdened properties need to keep occupancies high and at the same time cut costs to remain in compliance with debt covenants. However, deteriorating service levels could make that difficult, and we expect price discounting to intensify. We expect lodging revenue per available room, or RevPAR, declines of 5% to 8% in 2009, but we see those of casino hotel rooms falling more. (See Complete Story)
Though the private equity boom in the sector led to significantly higher valuations, we see high debt loads compounding difficulties from economic weakness. Debt-to-EBITDA ratios for casino/gaming companies that file public financial information with the Securities & Exchange Commission rose to 7.5 in the 12 months ended June 30, 2008 from 4.5 in 2002, according to Standard & Poor's Credit Market Services, which operates independently of Standard & Poor's Equity Research Services.
With cash flows declining, debt-burdened properties need to keep occupancies high and at the same time cut costs to remain in compliance with debt covenants. However, deteriorating service levels could make that difficult, and we expect price discounting to intensify. We expect lodging revenue per available room, or RevPAR, declines of 5% to 8% in 2009, but we see those of casino hotel rooms falling more. (See Complete Story)
You may also want to review these recent related posts:
Tuesday, December 16, 2008
Gaming industry projected to face significant pressure in 2009; recovery unlikely until 2010
PRESS RELEASE
Fitch: U.S. Gaming Industry Recovery Unlikely Until 2010
NEW YORK, Dec 16, 2008 (BUSINESS WIRE) -- Following one of its most challenging years in recent history, the U.S. gaming industry will remain under significant pressure in 2009, with a recovery unlikely until 2010, according to Fitch Ratings...
Fitch believes that a prolonged U.S. recession that extends beyond 2009 and into 2010, coupled with an extremely tight credit environment, will put significant additional pressure on the balance sheets of already stressed corporate gaming operators. There was a significant tick up in high yield (HY) gaming defaults in 2008, with five issuers (French Lick, Tropicana, Greektown, Herbst, and Majestic Star) defaulting on $2.3 billion of HY market principal through November 2008. Three other issuers (Trump, Station, and Harrah's) are on the cusp of defaulting on debt obligations.
Fitch: U.S. Gaming Industry Recovery Unlikely Until 2010
NEW YORK, Dec 16, 2008 (BUSINESS WIRE) -- Following one of its most challenging years in recent history, the U.S. gaming industry will remain under significant pressure in 2009, with a recovery unlikely until 2010, according to Fitch Ratings...
...The gaming industry experienced a greater impact from the difficult financial conditions for consumers in 2008 than many investors expected. Generally, gaming spend per visit has been affected more than visitation levels, which can be bolstered by promotions. Considering the combined effect of recent declines in gas prices, and reductions in airline capacity and international demand, Fitch believes regional/local markets will fare better than destination markets, such as the Las Vegas Strip...
2009 Credit Outlook
Fitch believes that a prolonged U.S. recession that extends beyond 2009 and into 2010, coupled with an extremely tight credit environment, will put significant additional pressure on the balance sheets of already stressed corporate gaming operators. There was a significant tick up in high yield (HY) gaming defaults in 2008, with five issuers (French Lick, Tropicana, Greektown, Herbst, and Majestic Star) defaulting on $2.3 billion of HY market principal through November 2008. Three other issuers (Trump, Station, and Harrah's) are on the cusp of defaulting on debt obligations.
The weak fundamental trends combined with generally high leverage and tight liquidity provides the basis for Fitch's negative outlook on corporate gaming operators in terms of both operating fundamentals and credit ratings. While Native American gaming operators are feeling similar pressure on operating trends, the issuers in Fitch's rated portfolio generally maintain more conservative financial profiles relative to rating levels, so those issuers will have somewhat more ability to maintain ratings in 2009. Due to more stable free cash flow profiles, stronger internally generated liquidity positions, a less capital intensive business model, and more conservative balance sheet management, gaming suppliers have the most attractive overall credit profiles and greatest ability to weather the downturn... (Complete Analysis)
Wednesday, December 10, 2008
Expanded MotorCity Casino Hotel bringing in less revenue
According to an article published 12.10.08 in the Detroit News:
On 12.05.08 both Standard & Poor's and Moody's lowered the credit ratings of and raised default concerns related to Ilitch-owned CCM Merger, Inc., the parent of Detroit Entertainment LLC, which does business as MotorCity Casino. Both ratings firms placed CCM Merger on Negative watch lists.
- "Year-to-date casino revenues are up for Detroit's gaming market as a whole, but only because of large gains at MGM Grand; both MotorCity and Greektown are taking in less revenue this year than they did in 2007." (Complete Story)
On 12.05.08 both Standard & Poor's and Moody's lowered the credit ratings of and raised default concerns related to Ilitch-owned CCM Merger, Inc., the parent of Detroit Entertainment LLC, which does business as MotorCity Casino. Both ratings firms placed CCM Merger on Negative watch lists.
Tuesday, December 09, 2008
Standard & Poor's uncovers declining cash flows at MotorCity Casino
12.05.08
Apparently after putting MotorCity Casino's parent CCM Merger, Inc. on CreditWatch and downgrading its credit and default ratings on 12.05.08, Standard & Poor's discovered the parent of MotorCity Casino had a more significant decline in cash flows than had been understood in taking those actions and and as such Standard & Poor's was forced to revise downward and publish the recoverability ratings of Senior Notes CMM Merger, Inc. is owing investors.
Standard & Poor's put MotorCity Casino parent CCM Merger on CreditWatch
12.05.08CCM Merger Rating Cut To 'B-' And Placed On CreditWatch
Negative Growth in gaming revenue has recently moderated in the Detroit gaming market, leading to weaker credit measures for CCM Meger, Inc., and a minimal cushion with respect to the company's total leverage covenant, despite debt repayment during the third quarter. We expect that CCM will begin to report moderate declines in EBITDA comparables beginning in the first quarter of 2009, and possibly as soon as the fourth quarter of 2008, based on our expectations for continued softness in consumer spending and the anniversary of the tax rollback on Jan. 1.
Thursday, October 30, 2008
Standard & Poor's assigns negative credit rating to Ilitch-owned casino company
Standard & Poor's changed its ratings outlook for Ilitch-owned CCM Merger, Inc., from stable to negative on 9.29.08:
- "Ratings on the company, including the 'B' corporate credit rating, were affirmed. The outlook revision reflects our concern regarding the limited cushion with respect to CCM's total leverage covenant and the potential for a violation of this covenant over the near term, as this measure steps down by 0.2x in the first quarter of 2009. Having completed the expansion project at its MotorCity facility, the bank agreement requires that consideration now be given to formerly excluded debt in calculating covenant compliance for the company..."
Sunday, September 21, 2008
UPDATED: Analysts have reason to keep a close watch on MotorCity Casino (CCM Merger, Inc.) right now
Give these kinds of circumstances, you can bet analysts at Moody's as well as Standard & Poor's are keeping a close watch on MotorCity Casino's parent company, CCM Merger, Inc -- the entity Marian Ilitch formed to acquire MotorCity Casino from MGM Mirage/Mandalay Resort Group and other minor investors in 2005. In late August, Moody's reaffirmed its negative credit rating outlook for CCM Merger.
- Ilitch -- falls on Forbes' list of "400 Richest Americans" for second year in a row. Forbes' attributes the fall to troubles at MotorCity Casino which is "facing new competition from MGM Mirage" as well as an "economic downturn depressing casino valuations."
- MotorCity Casino (MCC) -- MGCB reports indicate revenues for Summer 2008 (Jun - Aug) fell 6.5% over Summer 2007.
- MotorCity Casino (MCC) -- revenues at the new and improved MotorCity Casino through August 2008 were down 1.65% over the previous 12 month period. (MGCB)
- MotorCity Casino (MCC) -- completion of what's now reported as a $300 million construction project was celebrated in September 2008 nearly a year after construction was originally anticipated to be complete.
- MotorCity Casino (MCC) -- construction, originally set to be completed by end of 2007, was ongoing through March 2008.
- MotorCity Casino (MCC) -- An expanded (25% larger) gaming floor opened in June 207 and despite an initial bump in revenues in June and July 2007; for each of the subsequent three months, revenues declined. Revenues posted in October 2007 were second lowest in that calendar year.
- MotorCity Casino (MCC) -- hotel opening delayed.
- MotorCity Casino (MCC) – August 2007 revenues were down as compared to the prior month; just two months after opening its expanded gaming floor.
- Detroit -- labor authorizes strike against three Detroit Casinos beginning Tuesday, Oct. 16. MotorCity Casino is labor's first target among Detroit casinos. On Oct. 17, MotorCity Casino locks its doors to gambling patrons.
- Detroit – realized a short-run UAW strike against GM in September.
- Detroit - UAW workers walked off the production lines at Chrysler in October.
- Detroit – second highest foreclosure rate in the Country. CNN’s Money.com reports that this past year, one of every 29 Detroit area households recorded a foreclosure filing there, almost double the rate of a year ago.
- Michigan – faced the possible shutdown of Detroit’s Casinos in the event of an anticipated Oct. 1 state government shut down.
- MGM Grand Detroit -- will celebrate a Grand Opening of its new $775 million casino hotel the Week of October 2, 2007.
- MotorCity Casino -- 400-room hotel is set to open in November completing the property’s $275 million renovation and expansion; MotorCity Casino announced the hiring of a V.P. for hotel operations in July who mysteriously has come and gone from the yet to open property; and MCC announced the hiring of a second V.P. for hotel operations in September.
- MotorCity Casino – lost its head chef in September to a restaurant in Chicago.
- MotorCity Casino – trying to gain some local marketing advantage by developing some synergy with other Ilitch-owned brands – namely the Detroit Red Wings and Detroit Tigers. MLB has a ban on mixing gambling and baseball; and an announcement for a Red Wings’ gambling tournament scheduled to coincide with MotorCity Casinos grand re-opening was pulled from the NHL’s official Red Wings’ Web site in light of recent NHL gambling scandals.
- Ilitch - falls 55 spots on Forbes 400 List; MotorCity Casino credit ratings fell, Tigers fail to make playoffs, Red Wings fail to sellout
CCM Merger, Inc. is the entity which obtained nearly $1 billion from "investors" through traditional bank loans and junk bond offerings in 2005. Ilitch used $525 million to buyout MGM Mirage, projected $275 million to renovate and expand the casino property and the balance primarily to assist in financing the acquisition of the funds in the shortrun.
It should be noted that one year after Ilitch purchased MotorCity Casino, both Moody's and Standard & Poor's were forced to downgrade their credit ratings for the Ilitch-controlled CMM Merger, Inc. because the entity was leveraged beyond what investors were told originally that they might expect.
first posted 10.03.07
updated 10.10.07; 10.15.07, 10.17.07, 10.25.07, 11.21.07, 11.28.07, 9.15.08
Thursday, September 18, 2008
Ilitch drops to #301 on Forbes List; family's struggling Casino primary reason
Forbes magazine is out with its 2008 "400 Richest Americans" rankings. Detroit's Michael Ilitch dropped to #301 on this years list and Forbes estimates the combined net worth of Mike Ilitch's family at $1.6 billion which is unchanged over 2007.
The primary reason: Forbes reports that MotorCity Casino, technically owned 100% by Mrs. Marian Ilitch is "facing new competition from MGM Mirage" as well as an "economic downturn depressing casino valuations."
Ilitch Holdings, Inc. is the parent company of such privately held brands as Little Caesars Pizza, Detroit Tigers (MLB), Detroit Red Wings (NHL), MotorCity Casino, Detroit's Fox Theater. Other Ilitch owned-ventures manage many of Detroit's sports facilities and theater venues.
The Ilitch family is extremely guarded about releasing any detailed financial data for these entities.
MotorCity Casino, however, must publicly disclose its total monthly gross revenue figure to the Michigan Gaming Control Board (MGCB). Those figures are disclosed to the public regularly by the MGCB.
During the summer months (Jun - Aug), combined gross revenues at the gambling hall fell 6.5% over the same period in 2007; despite the additions of a 400-room luxury hotel (Fall 2007) and opening of an expanded gaming floor (June 2007).
MotorCity Casino is a d/b/a for Detroit Entertainment LLC which is owned entirely by another entity, CCM Merger Inc. Marian Ilitch reportedly assumed 100% control of MotorCity Casino in 2005 when she bought outstanding shares in the property from Mirage Resort Group (MRG) and various minor investors. Her buyout of MRG helped pave the way for the merger of MGM and MRG. Subsequently MGM Mirage built an entirely new $800 million casino resort in Detroit.
Since Marian Ilitch acquired control of MotorCity Casino, both Moody's and Standard & Poor's have been forced to put the casino's parent, CCM Merger, on negative watch and subsequently downgraded the entity's credit ratings. Ilitch has borrowed somewhere in the neighborhood of $1 billion from investors and creditors to acquire and remodel MotorCity Casino. Among other things, the credit ratings agencies site concerns that MotorCity Casino is leveraged beyond what investors were originally told to anticipate during the remodeling and construction phase.
Forbes: Michael Ilitch - ranked #301
Wednesday, August 27, 2008
Ilitch charitable foundations used to promote struggling gambling hall
Detroit's powerful Ilitch family is using its various affiliated charitable foundations to promote and possibly even generate revenue for the struggling Detroit casino owned by the family's matriarch.
According to a press release marketing the two-day festivities, on August 24 & 25, Ilitch Charities along with the Detroit Tigers Foundation and the Detroit Red Wings Foundation, hosted a Detroit area golf tournament which was preceded by a "Summer Soiree" preview party at Detroit's MotorCity Casino.
According to a press release marketing the two-day festivities, on August 24 & 25, Ilitch Charities along with the Detroit Tigers Foundation and the Detroit Red Wings Foundation, hosted a Detroit area golf tournament which was preceded by a "Summer Soiree" preview party at Detroit's MotorCity Casino.
The gambling hall is reportedly owned entirely by Mrs. Marian Ilitch. Family patriarch Patriarch Mike Ilitch owns the Detroit Tigers and along with Marian is co-owner of the Detroit Red Wings.
Christopher Ilitch, CEO of Ilitch Holdings and a member of MotorCity Casino's management committee, is the chairman of Ilitch Chairities and his wife Kelle is a director. David Agius, Christopher Ilitch's one-time executive assistant, is the President of Ilitch Charities. Patriarch Mike Ilitch owns the Detroit Tigers and along with Marian is co-owner of the Detroit Red Wings.
The Ilitch events were marketed as opportunities to play golf and mingle at MotorCity Casino with Hollywood celebrities as well as managers, players and coaches affiliated with the Ilitch owned Detroit Red Wings and Detroit Tigers.
The Ilitch family has been using its charitable foundations and other assets to promote and drive revenues to MotorCity Casino. Twice before the Detroit Red Wings Foundation and player from the NHL franchise have been used to promote poker tournaments at MotorCity Casino.
The Ilitch events were marketed as opportunities to play golf and mingle at MotorCity Casino with Hollywood celebrities as well as managers, players and coaches affiliated with the Ilitch owned Detroit Red Wings and Detroit Tigers.
The Ilitch family has been using its charitable foundations and other assets to promote and drive revenues to MotorCity Casino. Twice before the Detroit Red Wings Foundation and player from the NHL franchise have been used to promote poker tournaments at MotorCity Casino.
Major League Baseball (MLB) has strict prohibitions against gambling and casinos which apply to its players, managers, coaches and owners. The press release suggest those currently affiliated with the Tigers baseball team were partcipants at the MotorCity Casino party.
Even after spending more than $300,000 renovating and expanding MotorCity Casino, revenues at the Ilitch-owned gambling hall have been on the decline. Crain's Detroit reports that revenues at the Ilitch casino are down 1.5% over the previous 12 months and in July alone revenues took a 7.26% dive. In the last several years, Moody's and Standard & Poor's have downgraded the credit ratings for MotorCity Casino (aka CCM Merger, Inc.)
Even after spending more than $300,000 renovating and expanding MotorCity Casino, revenues at the Ilitch-owned gambling hall have been on the decline. Crain's Detroit reports that revenues at the Ilitch casino are down 1.5% over the previous 12 months and in July alone revenues took a 7.26% dive. In the last several years, Moody's and Standard & Poor's have downgraded the credit ratings for MotorCity Casino (aka CCM Merger, Inc.)
Tuesday, August 05, 2008
MotorCity Casino realizes 1.57 percent after betting on $300M expansion
According to a review of monthly casino revenues published by the Michigan Gaming Control Board (MGCB), average monthly gaming revenue at MotorCity Casino for the 12 months prior to the June 2007 opening of MCC's expanded gaming floor were $39,641,650.62.
In the 12 months since MotorCity opened its bigger gaming floor -- and then opening its new hotel -- average monthly revenues for Marian Ilitch's casino have been $40,264,844.87.
Increasing the gaming floor by 25% -- and adding a 400-room hotel to the property -- MotorCity Casino Hotel has realized a 1.57% increase in its monthly gaming revenues.
Can that be what investors expected?
It's been reported that Marian Ilitch borrowed $1 billion or more in order to acquire MotorCity Casino from MGM Mirage and then complete the expansion of the gaming floor, add the hotel, and cover the costs of debt service during the construction.
When the MotorCity Casino construction project started it was announced the project would cost $275 millon and would be completed by the end of 2007. The expansion project is still not complete and the Detroit Free Press has published construction costs at $300 million -- almost 10% higher.
During the last two years Moody's and Standard & Poor's have both downgraded credit ratings for CCM Merger, Inc., MotorCity Casino's parent company, because the casino's debt ratios had grown higher than originally anticipated during the construction period.
Monday, July 14, 2008
Revenues at Ilitch-owned MotorCity Casino take a significant dive
According to the Michigan Gaming Control Board, revenues reported by MotorCity Casino for June were $38,097,328.05. That represents a 10 percent drop over June 2007.
June 2008 revenues represent the lowest monthly revenues reported by MotorCity Casino in 2008. What's more, since May 2007, only October 2007 revenues at $37,709,923.79 were lower than revenues the casino reported for June 2008.
MotorCity Casino is a d/b/a for Detroit Entertainment LLC. The parent of Detroit Entertainment LLC is CCM Merger, Inc. The enterprises are owned by Mrs. Marian Ilitch. Among other business enterprises, she and her husband Mike Ilitch own the Detroit Red Wings and are co-founders of Little Ceasars Pizza. He owns the Detroit Tigers.
Ilitch acquired 100% ownership of Detroit Entertainment LLC (MotorCity Casino) in 2005. Since then both Moody's and Standard & Poors have put the enterprises on negative credit watch and have downgraded the credit ratings of the Ilitch-owned enterprises.
Reference:
2007 Revenues as reported to MGCB
2008 Revenues as reported to MGCB
June 2008 revenues represent the lowest monthly revenues reported by MotorCity Casino in 2008. What's more, since May 2007, only October 2007 revenues at $37,709,923.79 were lower than revenues the casino reported for June 2008.
MotorCity Casino is a d/b/a for Detroit Entertainment LLC. The parent of Detroit Entertainment LLC is CCM Merger, Inc. The enterprises are owned by Mrs. Marian Ilitch. Among other business enterprises, she and her husband Mike Ilitch own the Detroit Red Wings and are co-founders of Little Ceasars Pizza. He owns the Detroit Tigers.
Ilitch acquired 100% ownership of Detroit Entertainment LLC (MotorCity Casino) in 2005. Since then both Moody's and Standard & Poors have put the enterprises on negative credit watch and have downgraded the credit ratings of the Ilitch-owned enterprises.
Reference:
2007 Revenues as reported to MGCB
2008 Revenues as reported to MGCB
Wednesday, November 28, 2007
What's the truth about the completion of construction on MotorCity Casino?
Another Detroit Free Press story published 11.27.07 notes:
"Also unlike the MGM, MotorCity has elected to unveil its permanent facility in stages instead of a massive grand opening. In June, the new high rollers area and poker room opened to the public. Wednesday is the hotel’s debut. At the end of the year, the new Iridescence restaurant and a lounge will open on the tower’s top floor. And by the end of March next year, the rest of the renovated gaming areas, convention and banquet space and the concert area will be open."
In 2005, Marian Ilitch, the casino's owner told investors that construction on the $275 million expansion would be completed by the end of 2007.
Now it's reported the expansion has cost $300 million and wont' be completed until sometime in 2008.
MotorCity Casino reveues fall for third straight month; near pre-expansion lows
According to the Michigan Gaming Control Board, revenues reported for October 2007 by MotorCity Casino have fallen for the third straight month. In October, the Ilitch-owned gaming hall, with its 5-month-old expanded gaming floor, reported revenues of close to $37.71 million; making October the second lowest performing month in 2007. Only May (the month prior to the opening of the newly expanded gaming floor) has had lower reported monthly revenues at $36.79 million.
Moody's reported to creditors that MotorCity Casino had completed construction and opened its newly expanded (25% larger) gaming floor in early June 2007. The casino saw a bump in revenues for June and July but since then revenues have fallen with each new month and in October were at pre-expansion lows. MotorCity Casino has faced a few hurddles this fall including a threatened strike, a one-day closure, loss of the hotel's VP of operations and the delayed opening of its 400-room hotel.
Source: Michigan Gaming Control BoardAnalysts have expressed concern that MotorCity Casino hasn't performed to expectation and as such both Moody's and Standard & Poor's have both downgraded the credit ratings for MotorCity Casino's parent company CCM Merger, Inc. formed by Marian Ilitch in 2005 to facilitate the acquisition of Detroit Entertainment LLC d/b/a MotorCity Casino.
The investment in the expansion of the casino's gaming facilities have yet to yield and sustain any consistent new revenues.
MotorCity Casino expansion is over budget and behind schedule
Today's Detroit Free Press reports of the MotorCity Casino expansion:
Originally it was announced the expansion program would cost $275 millon and would be completed by the end of 2007.
Although the expanded gambling floor (25% larger) was opened to the public back in June revenues reported for October were at pre-opening lows; and just 1% greater than revenues reported in October 2006. In fact, despite the June opening of the expanded gaming floor, revenues as reported have fallen for the last three consecutive months.
Moody's and Standard & Poor's were forced to drop their credit ratings of MotorCity Casino's parent company CCM Merger, Inc. in 2006 and have given the holding company a negative credit rating.
Moody's reports that investors -- those who've loaned Marian Ilitch the $1.1 billion she needed to acquire MotorCity Casino from MGM Mirage/Mandalay Resort Group, to complete the expansion and to finance the financing package -- have reason to be concerned.
"The overall renovating and buliding project is costing $300 million, and is expected to be complete by the end of March."
Originally it was announced the expansion program would cost $275 millon and would be completed by the end of 2007.
Although the expanded gambling floor (25% larger) was opened to the public back in June revenues reported for October were at pre-opening lows; and just 1% greater than revenues reported in October 2006. In fact, despite the June opening of the expanded gaming floor, revenues as reported have fallen for the last three consecutive months.
Moody's and Standard & Poor's were forced to drop their credit ratings of MotorCity Casino's parent company CCM Merger, Inc. in 2006 and have given the holding company a negative credit rating.
Moody's reports that investors -- those who've loaned Marian Ilitch the $1.1 billion she needed to acquire MotorCity Casino from MGM Mirage/Mandalay Resort Group, to complete the expansion and to finance the financing package -- have reason to be concerned.
Wednesday, October 17, 2007
On heals of 2005 NHL lock out, can Ilitch recover from current casino labor dispute?
Hockeytown fans have complained of the high price of Red Wings tickets among other things and feel they've not been courted or treated well since the 2005 lockout.
And now, the Ilitch organization, in negotiations with labor unions for contracts at MotorCity Casino has reportedly locked the doors to its Detroit gambling hall and closed down its parking structure. Bus loads of disappointed gambling patrons are being turned away and heading to the new MGM Grand Detroit and elsewhere.
The question is, how long will the Ilitch organization continue to lock out patrons of its newly expanded gambling hall; and will the opening of MotorCity Casino's new hotel facility next month be enough to bring about a swift recovery in lost gaming revenue?
MotorCity Casino's parent company CCM Merger, Inc. currently has a negative credit rating with Moody's; and both Moody's and Standard & Poor's were forced to downgrade the casino's holding company's credit ratings after the first year of Ilitch ownership because it was leveraged at rates higher than projections investors were originally told to expect.
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