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Thursday, September 28, 2000
Copyright © Las Vegas Review-Journal

CASINO FINANCES: Regent defaults on payment

Action not a precursor to bankruptcy, spokesman says

Plagued by weak foot traffic, construction delays, a relatively distant setting and a flawed business plan, the companies that own and operate the 14-month-old Regent Las Vegas have defaulted on a $3.9 million interest payment owed bondholders.

The Resort at Summerlin Limited Partnership and The Resort at Summerlin Inc. also have defaulted on $1.05 million in payments owed PDS Financial Corp.-Nevada for, among other things, gaming equipment.

Word of the missed Sept. 15 payments came Wednesday afternoon in a filing with the federal Securities and Exchange Commission.

Executives of the limited partnership that owns and operates the high-end Summerlin gaming property plan to meet with bondholders and note holders to restructure the $220 million debt package.

A Regent spokesman blamed the $275 million property's financial woes on construction troubles that delayed the opening of nearly half of the Regent's 541 hotel rooms, as well as some of its restaurants, pool, spa and entire convention area.

"They've been struggling with that only because they're so late in opening," said spokesman Denny Weddle. "So when you're months late in a project and it doesn't open on time obviously (your) cash flow has challenges and you don't have monies coming in."

The Wednesday filing is not a precursor to a pending bankruptcy filing, Weddle said, noting that debt restructuring talks could prevent such a move.

"They're reaching out to lenders to see if they can restructure," Weddle said. "That would be the first step if fulfilled (that) would give them a whole different perspective on what they can and can't do."

A Wednesday search by one Wall Street source identified the property's bondholders as Morgan Stanley Dean Witter, AIM Advisors and John Hancock. Unlike company shareholders, bond investors are not required to list their holdings.

In the months leading to the Regent's July 1999 opening, project managers spoke of the gaming property's relatively small size and off-Strip setting as pluses in helping to lure the sort of high-end vacationers who frequent Palm Springs, Calif., and Scottsdale, Ariz.

But the resort's setting, 11 miles northwest of the Strip, its small 50,000-square-foot casino and delayed opening contributed to its problems, sources agreed.

"I'm surprised they made the coupon payments as long as they did because they weren't generating the cash flow to make their interest payments," said Andrew Susser, a Banc of America Securities bond analyst.

Three months after its opening, Resort Chief Executive Officer Brian McMullan resigned to be replaced by longtime Las Vegas casino operator Darrell Luery.

He immediately replaced half the reel slots in the casino and put in video poker machines, saying locals prefer them.

In December, The Resort was renamed the Regent, drawing upon the property's partnership with upscale hotelier Regent, which has a strong international appeal, especially in Asia, from where property developer Swiss Casinos of America had hoped to draw customers.

In recent months, Regent executives have accelerated their efforts to target the Las Vegas locals market. Offering a hybridized version of its original business plan, The Regent gave away five luxury cars in February.

At the same time, the casino has increased its efforts to draw high-end play, although The Regent's weak cash flow has limited the appeal of high-end risk for the casino's managers, a source said.

Earlier this month, the Regent hosted a street fair that drew thousands of teen-agers to the property's parking lot, but little of that foot traffic translated into casino play, prompting casino executives to tease a colleague who supported the idea, a source said.

In fact, on many nights limited numbers of gamblers can be seen playing $5-a-hand blackjack at tables that Regent executives had hoped would draw $25- and $100-a-hand players.

In recent days the property has faced a new challenge from Coast Resorts' newly opened Suncoast, a neighboring locals property operated by a company with much experience in that market.

"Essentially from the start it was a badly conceived project," Deutsche Bank bond analyst Andrew Zarnett said of the Regent. "It wasn't set up for the locals. It wasn't set up for the high-end vacation traveler. It was kind of a mix and match.

"That coupled with a capital budget that was too high put them behind the eight ball before they really got started."

Luery was recently replaced in the president and CEO's post by Paul Hanley, with Luery accepting a corporate job with the property's owners. The pair failed to return Wednesday phone messages.

Meantime, legal troubles enveloped the project.

In February, The Resort at Summerlin Limited Partnership filed suit in U.S. District Court seeking damages of more than $200 million from construction manager J.A. Jones Construction Co. in connection with the delayed opening.

An estimated $30 million in liens were filed against The Regent by more than 50 contractors and suppliers who were seeking payment for work they say they performed on the property.

Despite the Regent's troubles, parent company Swiss Casinos of America recently purchased a Summerlin gaming site near Flamingo Road and the future beltway extension for an undisclosed amount of money. The company also hold the right of first refusal on four additional Summerlin sites zoned for gaming.

"We feel that the Regent is a spectacular and tasteful addition to Summerlin, and we hope that any business challenges to the Regent are short lived," said Tom Warden, vice president of community relations for Summerlin developer Howard Hughes Corp.