Investors in Rivers Casino are pouring more money into the underperforming facility. The investors include Rivers Casino Chairman Neil Bluhm and the Detroit fire and police pension funds who together are putting up $108 million to pay for the arrival of table games, retire existing debt and provide liquidity. While this may seem like welcome news to some, it is viewed as a strong negative by Standard and Poor’s.
S and P lowered the credit rating on Holdings Gaming Borrower LP (HGB), the umbrella company that owns the Rivers Casino, from CCC to “selective default” (SD) upon the announcement of the cash infusion. As the ratings agency explains in a June 2nd release “the rating downgrade actions reflect our assessment that HGB’s recent repayment of its first-loss loan at a discount to par is tantamount to a default given the distressed financial condition of the company and our previously stated concerns around HGB’s ability to service its capital structure”.
In easier to understand English, the revenues from Rivers Casino thus far have been so disappointing the facility will have difficulty meeting all its obligations. Besides debt service, these obligations include not only the 55 percent gaming tax levy and normal operating costs but the annual $7.5 million contribution to the new hockey arena as well as millions in property and payroll preparation taxes. Standard and Poor’s is apparently convinced there will not be enough to meet debt service.
It’s unlikely that the addition of table games will be enough to reverse the fortunes of the casino. The investors of HGB may just be throwing good money after bad in an attempt to keep the casino afloat until the economy dramatically improves.
