Would-be casino operators in shadow of a past failure

The Live! Philadelphia proposal in South Philadelphia would cost $425 million but require no debt.
The Live! Philadelphia proposal in South Philadelphia would cost $425 million but require no debt.
Posted: February 27, 2014

The five companies vying to build a second casino in Philadelphia are competing against each other, but also against the ghost of Foxwoods, which in 2006 won a license for a casino along the Delaware in South Philadelphia but failed to secure the money to build it.

Current bidders - scheduled to make final arguments to the Pennsylvania Gaming Control Board on Wednesday - have used a variety of tactics to convince commissioners that they are not another Foxwoods, which lost its license in December 2010.

Applicants have highlighted national track records, sworn they do not need to borrow a dime to build, lined up two major banks, promised cushions of extra cash, and even touted debt packages twice the amount needed to realize a dream.

An industry expert doesn't expect financing to be a problem this time.

"I don't think any of these guys are going to have any issues getting approvals for these loans, getting these loans, and getting them at pretty good rates," said Saverio R. Scheri III, president and chief executive of WhiteSand Gaming L.L.C., a consulting firm with offices in Atlantic City, Las Vegas, and overseas.

After Wednesday's meeting, the gaming board will begin final deliberations, but it is uncertain when or if it will award the second Philadelphia license.

To demonstrate the ability to pay for their proposals, with price tags ranging from $425 million to $700 million, most applicants have lined up a combination of debt and equity, which is usually a cash contribution, like a down payment on a house.

Finance experts said it would be unusual for a casino developer to borrow more than 75 percent of the total amount needed.

Only the partnership between Cordish Cos. and Greenwood Gaming Inc., which has proposed the $425 million Live! Philadelphia casino in South Philadelphia, said it did not need debt to build. "We're not dependent on anyone else's money. We're not dependent upon Wall Street," Joe Weinberg, managing partner for Cordish, said last month at board hearings in Philadelphia.

By contrast, Bart Blatstein plans to borrow all of the $600 million he needs for the Provence, counting the value of the property he owns at the proposed site along Callowhill Street west of North Broad Street as his equity.

Blatstein bought that property, including the former Inquirer Building, for $22.65 million in 2011. His financing proposal now values the property at $100 million, more than four times what he paid.

That seems jaw-dropping at first, but experts said that the value of a piece of land with a casino is much different from what it is without a casino.

"If it's for gaming, you can increase the value by two, three, four, five times," said Dan Davila, a partner in Poydras Capital, a New Orleans gaming finance firm.

That ratio is borne out - and then some - in the prices other applicants have agreed to pay for the properties where they would build their casinos.

For example, Penn National Gaming Inc. said the property at 700 Packer Ave., where it has proposed building a $480 million casino, should be worth $60 million, according to a gaming board document.

The city values the same parcel at just $6.5 million, which means the land would be worth 9.2 times more with a casino on it.

The bigger issue in Blatstein's financing proposal is that his $100 million in equity amounts to just 14 percent of the project's total value of $700 million, significantly less than the typical 25 percent to 30 percent in equity.

Blatstein emphasized that he had lined up financing totaling $1.23 billion - twice what he needs - plus what he called his "own significant financial resources."

But potentially complicating the picture for Blatstein is the possibility of "some additional licensing ramifications" with two of Blatstein's funding sources, according to Cyrus Pitre, director of the state gaming board's office of enforcement counsel.

Blatstein is not the only applicant to include land as part of the equity.

Joseph G. Procacci, the main backer of the proposed $428 million Casino Revolution, included $50 million of land he already owns in the $130 million of equity to be invested by the partnership he leads.

Procacci's group said it has arrangements with two investment banks, Jefferies & Co. and Wells Fargo Securities, to provide debt totaling $298 million.

The $500 million Market8 proposal, planned for the corner of Eighth and Market Streets, is relatively straightforward. It calls for $125 million in equity and $375 million in debt. Market8 partners have said they also have $50 million in "contingent equity" - a just-in-case fund.

Penn National said money from operations and revolving credit would pay for its Hollywood Casino on Packer Avenue.

Tim Wilmott, Penn National's chief executive, said at the January meeting there was no doubt his firm could build, alluding to the fact that Foxwoods "couldn't get it started because of financing."

"We have our operating cash flows and our balance sheet that can deliver this $480 million proposal as it stands today," Wilmott said.


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