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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Ratings assignment marks sign of Sahara rebirth

5 April 2012

A ratings assignment by Moody's Investors Service on a proposed $300 million in debt being floated by the owners of the closed Sahara marked an initial sign of rebirth for the shuttered hotel-casino.

The ratings agency said Wednesday that it had a positive view of the loan, which would be used to turn the Sahara, which closed in May, into SLS Las Vegas, a luxury hotel brand owned by privately held SBE Entertainment.

The Los Angeles-based company operates 14 nightlife and restaurant venues in Southern California. SBE runs the Hyde Lounge at Bellagio and has 30 properties in cities such as San Francisco, Dallas and Miami.

SBE and Stockbridge Real Estate, a San Francisco-based private equity group, acquired the Sahara in 2007. In November, Clark County commissioners approved a tentative plan for the Sahara remodeling that would reduce the hotel's size from 1,720 rooms to 1,600 rooms.

Moody's took a positive view of the debt and planned Sahara renovation based on Stockbridge's and SBE's "very good liquidity profile, including a six-month escrow interest reserve and 24-month funded cash interest reserve (three months past completion)."

The SLS Las Vegas is expected to open in 2014. In addition to renovating the three existing hotel towers and the property's casino, plans call for a 21,000-square-foot nightclub and 41,000 square feet of meeting and convention space. The Sahara's roller coaster will be dismantled and replaced with 2,830 square-foot beer garden.

SBE Chief Executive Officer Sam Nazarian said last year SLS Las Vegas would feature his company's signature restaurant brands, including Katsuya and Umami Burger, and two SBE nightclubs.

In addition to having a positive view of Stockbridge's financial profile, Moody's gaming analyst Peggy Holloway wrote in the report that SBE Entertainment "has a successful track record" in establishing hotel, restaurant and nightlife venues.

SBE also has a database of customers from its operations and the Sahara, which Moody's believes would "reduce the risk of a slow ramp-up upon opening" when compared with other single-property casino companies.

"Little new supply is expected to enter the market," Holloway said. "The project is targeted at what Moody's believes is an underserved market segment on the Las Vegas Strip, just below luxury."

Moody's assigned a provisional designation of B2 to the $300 million in debt, which would be removed and given B2 rating once the loan is completed.

"The rating outlook is stable reflecting Moody's view that the project has sufficient liquidity to reach completion and that the market can absorb the new supply," Holloway wrote in the report.

Architectural design firm Gensler and Penta Building Group have been announced as planning the development.

In a December interview, Nazarian said he has "always" been excited about the north end of the Strip.

The 59-year-old Sahara closed after SBE said it was "no longer economically viable" to operate the Strip resort. All of the Sahara's furnishings and memorabilia were sold in an estate sale.