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Equity groups seek controlling stake in Palms casino

Two private equity groups, including one of the co-owners of Caesars Entertainment Corp., are said to be in discussions with Palms owner George Maloof to take over a controlling stake in the off-Strip casino.

Bloomberg News reported Thursday morning that Los Angeles-based Leonard Green & Partners and TPG Capital of Fort Worth, Texas, acquired most of a loan backed by the Palms at a discount last year. The groups are looking to take an equity stake in the hotel-casino as part of the restructuring, according to unnamed sources who talked with Bloomberg News.

A spokesman for the Palms declined to comment on the story Thursday.

TPG owns Caesars Entertainment along with Apollo Global Management Group. The two firms acquired the company, then known as Harrah’s Entertainment, in a buyout worth more than $29 billion in January 2008.

Leonard Green is reportedly the buyer of MGM Resorts International’s 50 percent stake in the Borgata in Atlantic City. The deal is still pending New Jersey regulatory approval. The company also was involved in the auction process last year to acquire the debt of M Resort, which was won by Penn National Gaming.

Representatives from both private equity firms could not be reached for comment.

Maloof, who opened the Palms in 2001, may partner with the private equity firms to remain the operator with a reduced ownership stake, according to Bloomberg News. The property is backed by a revolving credit agreement, originally for $400 million, that came due in October and wasn’t refinanced.

The Palms reportedly breached financial covenants on its loan as Las Vegas suffered through a prolonged recession that reduced consumer spending on gaming.

According to Bloomberg News, Leonard Green and TPG partnered on previous deals, including bids to acquire ownership in Petco Animal Supplies and clothing retailer J. Crew Group Inc.

Wells Fargo Securities gaming analyst Carlo Santarelli said the potential deal shows that private equity groups remain interested in acquiring gaming industry assets as Las Vegas and other destinations recover from the recession.

He thought Leonard Green was the primary driver of the possible transaction and expects an agreement to be reached by the end of March.

“Should a deal be completed, given the would-be ownership structure of Palms, we would anticipate the property being rolled into the Caesars portfolio,” Santarelli told investors. “We believe this would have a positive impact for both the Palms, via its inclusion in the Total Rewards program, and for Caesars, given Palms’ status as a differentiated Las Vegas asset when compared with its existing portfolio.”

The Palms has 95,000 square feet of casino space and is marketed as both a celebrity hangout and a place for local slot machine players.

The property has 1,300 hotel rooms, including several high-end suites in the property’s Fantasy Tower. Suites themed after the Playboy Club have private outdoor pools while other suites have a bowling alley and a basketball court. The Palms also has a 600-unit condominium tower.

Earlier this week, Maloof settled a lawsuit with business partner Michael Morton, ending a 10-year relationship involving the Palms’ restaurant and nightclub operations.

Under the terms of the settlement, Maloof will take over management of N-M Ventures, the entity that owns and operates N9NE Steakhouse, ghostbar, Rain nightclub, Nove Italiano, the Playboy Club, Moon nightclub and the Stuff store.

The Maloof family built and opened the Fiesta in North Las Vegas before selling the property to Station Casinos. The family owns the National Basketball Association’s Sacramento Kings.

Contact reporter Howard Stutz at
hstutz@reviewjournal.com
or 702-477-3871.

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