This article is provided to FT.com readers by Debtwire—the most informed news service available for financial professionals in fixed income markets across the world. www.debtwire.com
--------------------------------------------------------------------------------------------------------
Tightening credit markets claimed another victim this week as Centaur Gaming entered discussions to pay back lenders early and to cancel its Pittsburgh-area casino development, a lender and source familiar with the matter said.
The privately held casino operator took out the loans in October to build the slot facility but a delayed gaming license and tortuous amendment negotiations pushed the company into a corner. A steering committee led by three hedge funds – Anchorage Advisors, HBK Investments and Highland Capital – is representing lenders in the talks, both sources said.
Loan holders now intend to “extract as much value as possible” through a hefty paydown of their USD 770m credit facility, said the lender. A takeout at par would present a significant premium over the loans’ current trading levels, quoted in the mid-80s by Markit.
But Centaur won’t return the money without concessions, said the source familiar with the matter. Even if the two sides reach an agreement, the debt won’t be paid back all at once.
Some lenders used the specter of bankruptcy as leverage in negotiations, as previously reported. But that threat carries little weight given that loan holders face an 18-month wait to be repaid in a Chapter 11 proceeding, said the source familiar. “This is a voluntary consensual out-of-court restructuring,” the source said. “If the [lenders] don’t want the cash, [Centaur] will keep it.”
Centaur has been in technical default on its loans since failing to obtain a gaming license for the planned Valley View Downs slots parlor outside Pittsburgh by a 15 July deadline. Credit Suisse sold the deal in October to back the Valley View project and the purchase of a USD 250m gaming license for Centaur’s Hoosier Park racino in Indiana.
The company previously offered lenders a 100bps upfront fee and a 100bps step-up to amend the credit facility and had, until recently, been working on a new USD 130m second lien to fund a comparable paydown of the first liens. But the new financing, led by existing second-lien lender Goldman Sachs, fell through over the weekend, prompting the steering committee to call for a faster and more significant paydown, said the first lender.
The lender group wants management to immediately repay USD 200m-USD 250m of the USD 380m in proceeds that were earmarked for the Valley View construction, said the first lender and a second lender. The USD 380m slated for the project remains in escrow.
Assuming Centaur calls some of the loans now, it could then sell the Valley View license and use those proceeds to retire more of the secured debt, the lenders said. The license should fetch several hundred million dollars if sold to another gamer, since it is one of only seven eligible racino sites in the state. A slots license at Pocono Downs sold for USD 330m in January 2005, and The Meadows racino license sold for USD 250m in November 2006.
Centaur wants flexibility from loan holders in exchange for returning their cash early, said the source familiar. Management is looking for concessions on use of cash, covenant headroom and a timetable for repayment, he said, adding that the loans don’t benefit from call protection.
Centaur’s USD 470m first lien was quoted in the 87-90 context today, implying a three-year spread of Libor+ 800bps, a lender said. The USD 180m second lien was quoted most recently on 31 July at 78-80, implying a three-year spread of Libor+ 1,483bps. Both loans rarely change hands, he said.
The bottom-line approach adopted by Centaur’s lenders reflects growing cynicism among casino investors following the protracted battle over Pittsburgh Gaming Holdings credit facility, the first lender and a second industry source said. Pittsburgh’s USD 200m bridge has been stuck in default for two months, and remains in regulatory limbo pending a license transfer from the Pennsylvania Gaming Control Board, as previously reported.
Centaur retained Rothschild as financial advisor and Milbank Tweed represents first-lien lenders as legal counsel. Centaur, Credit Suisse, Goldman and Rothschild declined comment while Anchorage, HBK, Highland and Milbank did not return requests for comment.
--------------------------------------------------------------------------------------------------------
For more information or to inquire about a trial please email sales@debtwire.com or call Americas: +1 212-686-5374 Europe: +44 (0)20 7059 6113 Asia-Pacific: +852 2158 9731
