Attempting to stave off bankruptcy

More trouble could be ahead for struggling Twin River.
Massachusetts’ most powerful politicians appear poised to make a serious push at expanding gambling in that state – a move that could severely cut into the number of out-of-state patrons visiting Rhode Island’s video-slot parlors Twin River and Newport Grand, both of which are major moneymakers for an already cash-strapped state.
Mass. Gov. Deval L. Patrick, new House Speaker Robert A. DeLeo and Senate President Therese Murray met earlier this month to talk about the possibility of adding new gaming sites as that state tries to weather its own fiscal woes.
Last year, Patrick had proposed allowing three licensed casinos, including one in southeastern Massachusetts, but former Speaker Salvatore F. DiMasi – a gambling opponent – led a successful fight against it in the General Court.
Now DeLeo is in the leadership role, and he has said publicly that he wants slot machines at the state’s race tracks, including at Wonderland Greyhound Park in Revere and Suffolk Downs in East Boston, which are located in his district.
The change in political winds in the Bay State comes as Twin River in Lincoln is on the brink of bankruptcy, unable to pay back $565 million in loans after paying $445 million for the antiquated slot parlor and greyhound race track in 2005, and then plowing $225 million into renovations in 2007.
Twin River parent company UTGR Inc. – a subsidiary of BLB Investors LLC – has missed loan payments, has had its bond rating downgraded and has liens totaling $6 million placed against it by contractors that had performed the extensive renovations.
The main lender, Merrill Lynch Capital Corp., has held off taking action at UTGR, even though a forbearance agreement expired last month.
Such uncertainty over the future of Twin River has raised concerns among state leaders, who are looking to protect the $250 million the video slots are projected to generate in revenue for the state this fiscal year.
R.I. General Treasurer Frank Caprio has suggested that the state investigate purchasing the facility at a discount price, which would then allow the state to increase its share of the take.
And a few legislators have come up with their own ideas involving both Twin River and Newport Grand: One bill would amend the state constitution to allow casino gambling at both locations, and another would authorize 500 more slot machines at Twin River and 400 at Newport Grand.
While House Speaker William J. Murphy and Gov. Donald L. Carcieri both have said that all options should be examined, most Rhode Island politicians are taking a wait-and-see stance.
“The ball is the court of Twin River right now,” said Larry Berman, Murphy’s spokesman.
Twin River spokeswoman Patti Doyle said last week that the slot parlor and its lenders are still attempting to work out an agreement to restructure the debt, although she cautioned that bankruptcy remains a possibility.
The political developments in Massachusetts likely won’t make things any easier.
Clyde W. Barrows, director of the Center for Policy Analysis at the University of Massachusetts-Dartmouth, noted that studies have shown that about 40 percent of Twin River’s revenue is derived from Massachusetts residents. (READ MORE)
If slot machines start appearing at race tracks in Massachusetts, “many of those customers will instantaneously gravitate back to their home state,” Barrows said.
He put the chances at “more than 50-50” that Massachusetts lawmakers will be asked to vote on legislation to put slots at the tracks.
It’s conceivable that, if that legislation passed, the machines could be installed as soon as Jan. 1, 2010, Barrows said.
Gaming analysts say Twin River has fared relatively well in an industry that has been suffering revenue declines in recent months.
Twin River’s 4,752 video lottery terminals (VLTs) generated revenue of $192.64 million in the first six months of fiscal 2009, which started in July, up slightly from the $191.69 million from the same period a year ago. (In December, however, Twin River’s revenue was $27.98 million, down $692,000 – or 2.41 percent – from December 2007.)
By comparison, Newport Grand’s revenue from its 1,300 VLTs for the first half of fiscal 2009 was $32.30 million, down 10.10 percent from last year’s figures, even though there were fewer machines at the site in fiscal 2008.
“[Twin River] generates handsome gaming revenue,” said gaming analyst Joseph Weinert, senior vice president of Spectrum Gaming Group, an independent gaming-research firm based in Linwood, N.J. “It’s an attractive property. And it’s in an attractive market.”
Barrows believes BLB paid too much for what was then Lincoln Park in 2005. He suspects the company had hoped to eventually convert Twin River into a full casino.
Doyle acknowledged that BLB blew past its original $125 million budget, by $100 million, as it converted the site into a destination with restaurants, a comedy club and a convention hall. But the expansion (part of which is shown at right) still might have paid off, she added, if not for the economic downturn and the severe credit crunch.
Aside from some legislative moves such as allowing both slot parlors to remain open all night on weekends, state officials have not exactly rushed in to bail out Twin River’s owners.
Perhaps that’s because of the revenue model used with both Twin River and Newport Grand. The slot parlors don’t own the VLTs. The state leases them from GTECH Corp. and collects the revenue, taking its share – 61 percent from Twin River and 63.49 percent from Newport Grand – before divvying the rest out.
For that reason, some officials believe the state will continue to get its share even if BLB seeks bankruptcy protection, unless Twin River closes its doors.
Because Twin River is still a big moneymaker, it is in no one’s best interest to turn off the spigot, Weinert said last week.
The Carcieri administration has hired New York-based private equity firm Blackstone Group and the national law firm of Willkie Farr & Gallagher LLP to advise state officials on the situation.
But the governor certainly hasn’t budged since he and other state leaders rebuffed an offer by BLB last year to make a one-time payment of $560 million to the state in exchange for drastically reducing the percentage the state would get in future video-slot earnings.
“The governor has said this is not a revenue problem, it’s a debt problem,” said Carcieri spokeswoman Amy Kempe.
Barrows said it’s likely that the lender will do what it can to prevent BLB from filing for bankruptcy, since that process – even if the site continues operating – can scare off gamblers and make the site less attractive to potential buyers.
Doyle said Twin River is talking to state officials about making other changes that could boost revenue. •