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Gaming Guru

Hubble Smith

Casino developer seeks bonds for project

21 April 2008

LAS VEGAS, Nevada --- With Wall Street turning its back on Las Vegas, developers are forced to look for more creative means of financing billion-dollar resort projects.

Elysium Properties, a Nevada corporation, applied in February to the Nevada Department of Business and Industry for the issuance of industrial development revenue bonds to finance costs related to building a $3.8 billion hotel, casino and conference center in Las Vegas.

The department acts as an intermediary for the bonds, said Roscoe Woods, president and general counsel of OCS Capital. Neither the state nor its taxpayers would be responsible for any debt or tax burden on the project, he said.

As the bond's facilitator, the Albuquerque, N.M., firm will help place the debt in certain portfolios through an investment banking house, which Woods declined to identify.

"The bond buyer is going to be a sophisticated institutional investor," he said.

Jackie Robinson, a forward for the University of Nevada, Las Vegas basketball team in the 1970s and a member of the 1978-79 National Basketball Association champion Seattle SuperSonics, put together ancilliary pieces of the deal. He identified the property with an attorney and partnered last year with Michael Bellon, former managing partner and director of development for the canceled Pinnacle high-rise project on Tropicana Avenue.

Elysium has 38.5 acres under purchase contract on Las Vegas Boulevard, but the exact location cannot be disclosed in light of efforts to assemble additional acreage, Woods said.

Nevada Department of Business and Industry Chief Financial Officer Lon DeWeese said industrial development revenue bonds have "been on the books" for 30 years, but have never been used successfully for a gaming resort.

They were designed as a stimulus tool to diversify the state's economy, assisting companies that might not otherwise be able to obtain financing, he said.

"It's fairly available to small mom and pop manufacturers of widgets or to someone who wants to build a gaming resort," DeWeese said. "We do a lot of small manufacturing, from small cement plants to solid-waste facilities. That's the most realistic and most common (use)."

Such bonds were issued to Las Vegas Energy, a separate company of Boyd Gaming, to provide heating, water and power services to the company's Echelon resort project, DeWeese said.

Under the agreement with Elysium, the developers would take out permanent financing for the debt portion. The Department of Business and Industry will not issue revenue bonds beyond a certain portion of the debt, usually 75 percent of the total cost, DeWeese said.

Elysium will have to come up with equity and must demonstrate it can realistically pay back the debt, he said. A letter of credit is required to guarantee bondholders "wouldn't be left holding the bag," even if the project runs into trouble, he said.

A complete credit meltdown on Wall Street has "seized up" private institutional financing for Strip projects, OCS Capital's Woods said.

Bloomberg News, citing a Merrill Lynch index of bonds yielding at least 10 percentage points more than Treasurys, reported that the amount of distressed corporate bonds jumped to $206 billion in April from $4.4 billion in March 2007. Some issuers of bonds that are currently distressed, or considered at risk of default, include Las Vegas casino operators Herbst Gaming, Tropicana Entertainment and Station Casinos.

Elysium's certificate of application, which is in effect until Dec. 31, does not bind the Department of Business and Industry to issue the bonds or proceed with financing for the project.

A two-step approval process starts with Clark County's initial authority to approve the director's finding of facts. Then it goes to the state finance board for final authority to tell the director whether or not to issue the bonds, DeWeese said.