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Best of Benjamin Spillman
Benjamin Spillman

Fitz off the market for now

14 July 2008

LAS VEGAS, Nevada -- Don Barden won't need to sell Fitzgeralds to maintain a stake in a slots-only casino in Pittsburgh, but the downtown Las Vegas casino remains an asset he could use to generate cash for his struggling gambling portfolio.

On Thursday, Barden announced he will relinquish a quest for a majority stake in the $800 million Majestic Star casino project in downtown Pittsburgh.

Although Barden will maintain a 25 percent share in the Pennsylvania project, bankers will no longer need the Fremont Street casino as collateral for the $35 million he had promised to contribute to the venture.

Instead, real estate developer Neal Bluhm will take control of the Pittsburgh casino, which is already under construction, and Barden will be left to contemplate the future of his remaining properties in Las Vegas, Colorado, Indiana and Mississippi.

"He has some other issues," said Ben Bubeck, analyst for Standard & Poor's, which in April downgraded the debt rating on Barden's Majestic Star Casino company.

The company owns two properties in Gary, Ind.; one in Black Hawk, Colo.; and another in Tunica, Miss.

Fitzgeralds in Las Vegas is owned separately under Barden Development and has no significant debt, Bubeck said.

The Fitz, as it is known locally, is privately owned and doesn't disclose revenue. But Bubeck said it likely earns less revenue than Barden's properties outside Nevada. Bubeck said the Indiana properties alone earned $250 million in revenue in 2007.

Kirk Saylor, Fitzgeralds vice president and chief operating officer, did not return a call for comment.

Debt for the properties outside Nevada under the Majestic Star company were downgraded to CCC+ with a "negative" outlook in April by Standard & Poor's.

"It signifies we are concerned a default is possible potentially within the next 12 months," Bubeck said of the rating.

According to a research update at the time of the downgrade, "Majestic Star's liquidity position is weak."

The update said the company recently amended bank covenants to retain access to $23.6 million from an $80 million line of credit.

The revised deal lowered the amount of earnings before interest, taxes, depreciation and amortization, or EBITDA, the company needed to produce to secure the credit to $58.5 million. The research note said Majestic Star's EBITDA in 2007 was $67.8 million. It also said the company had about $29 million in unrestricted cash. But it added that much of that cash was needed for operations and also included money in casino cages.

If Barden did want to sell his Las Vegas property, now is a tough time to put it on the market. In recent months a number of downtown properties have changed hands, including the sale of Binion's to Terry Caudill of Las Vegas for $32 million.

But the economic slowdown has investors running away from gambling deals, with even big-name casino stocks such as Las Vegas Sands and MGM Mirage trading at a fraction of what they did late last year.

As for Pittsburgh, Barden is no longer in the driver's seat on the project.

After winning the license for the project, Barden was unable to put together a financing plan that would stick. The news came in May that he would use the Fitz as collateral for the $35 million bankers wanted him to contribute to the deal, prompting speculation he would need to sell the Las Vegas property to make good on the pledge.

Delays and shaky financing deals are an indication the rough economy is taking a toll not only on Las Vegas but on smaller, regional gambling projects, according to Joe Greff of JPMorgan.

"We believe the transfer of the license and lack of available financing for the casino project further points to current credit market conditions," Greff wrote in a research note on Friday.