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Hard Rock Debt Payment

Discussion in 'Casino Industry & Development' started by smartone, May 13, 2014.

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  1. smartone

    smartone VIP Whale

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  2. LolaDoggie

    LolaDoggie VIP Whale

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    I was wondering about this when they threw out Ben Affleck.
     
  3. Kickin

    Kickin Flea

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    PIK is a payment-in-kind. PIK interest means instead of paying you your interest in cash, they pay it to you in additional debt (sometimes equity too)...i.e an IOU. Obviously its risky, so the terms are pretty aggressive and subject to pretty stringent financial metrics the company needs to show before making payment.

    Libor is the London Interbank Offering Rate, in theory its the rate at which banks borrow from each other. In practice its used as a reference rate for every bond or loan in the world. If you think your borrower needs to pay 500 bps (5%) above Libor, than you take that day's LIBOR+5% to calculate the rate.

    The fact that they can't make a PIK payment is pretty bad, much worse than not being able to make a cash payment because it means they haven't met the minimum thresholds to issue new debt. The fact that their CFO left at a time like this is also a bad sign that he saw no hope in turning things around and didn't want to be the CFO of a bankrupt organization. If they miss this payment they will be in technical default and if the lender calls the bonds (i.e. accelerates) they will be in full default and likely be put into receivership where a court can give the lender ownership. I didn't know things were that bad at Hard Rock.

    It probably is a good idea to use up loyalty points if they can be used as cash because if the company is put into receivership you don't know how that liability will be treated.
     
  4. smartone

    smartone VIP Whale

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    Yikes! Thank you so much for the "translation" into English!!!
     
  5. Auggie

    Auggie Dovahkiin

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    The talk of Libor +250 and its a PIK loan just means: they took a high interest loan

    They currently need to pay $44.3M in interest on a $902M loan and the article is saying that they can't afford to pay the interest.

    So...
    - They lost hundreds of millions of dollars over the last 8 years
    - The $44.3M interest payment is due now
    - The debt of $902M is due in 2018
    - They can't afford to make the interest payment

    All that together means they will likely be foreclosed on in 2018. The debt is so big versus how much the property actually takes in that nobody is going to want to lend them more money especially since they can't make current interest payments. And the owners aren't likely to want to pump money in to the property to save it because the much smarter decision is to just let it go - to pump $1B+ in to the property so that they will likely continue to lose money or if they aren't losing money probably only making $10-15M a year where it could take nearly a century to get their money back out of it.
     
  6. paperposter

    paperposter VIP Whale

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    well i just gave them a 100 i lost on slots , so thats a start
     
  7. Someone

    Someone High-Roller

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    can't they just sell the pool to themselves and the ice machines and mattresses and pillows and then issue some new shares in the new entity that owns the pool and ice machines and mattresses and pillows and pretend they are financially sound again :poke:
     
  8. paperposter

    paperposter VIP Whale

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    cet already did it , cant be repeated till 2024:nworthy:
     
  9. Viva Las Vegas

    Viva Las Vegas Ramblin' Gamblin' Man

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    And to think, this story began 14 years ago after the original owner borrowed a grand for a trip to Vegas.

    Compound interest is magic.
     
  10. paperposter

    paperposter VIP Whale

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    i guess im using my last free steak diner before may 31st:thumbsup:
     
  11. UTE

    UTE Plastics

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    Nice work, Auggie. You nailed it.

    Bill
     
  12. Kickin

    Kickin Flea

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    Those of you who have been following the Hard Rock probably know this, but I was just reading up on its history last night. These current owners (Brookfield) took it over as part of a settlement in 2011. They were the first mezzanine lenders to the previous owners (Morgan Hotel Group and investors) who bought it in 2007 and subsequently defaulted.

    Here is the original rosy eyed presentation Morgan Hotel Group gave during the easy credit days in 2006 when they were buying the property, which they described as a "once in a lifetime opportunity": http://library.corporate-ir.net/library/19/194/194863/items/198088/Morgans_Hard%20Rock_Transaction_Presentation_5.19.06.pdf

    In 2011 it was actually a second mezzanine lender (not Brookfield) that called the bonds which forced them to give up the property. Then they threatened to auction of their collateral which would screw up things for other creditors. So Brookfield et. al. filed a standstill agreement to block any action while they worked out a deal for all creditors. Its a pretty typical process. MHG wrote down the value of their investment to zero. Brookfield has likely been a reluctant owner, so they may not really try to save this thing if they can find an easy exit.

    I wouldn't worry about anything happening to your comp points in the near term, the whole process to accelerate and then go into receivership (if that happens) takes a long time. Plus if another operator takes it over I'd assume they would leave the points in tact or fold the player club into their existing program instead of pissing off all of HRH's customers. The only worry is if the casino is completely liquidated and no longer an ongoing enterprise or if the company is in such bad shape that they can't pay off trade creditors, in which case the player club points will probably have no priority at all.
     
  13. paperposter

    paperposter VIP Whale

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    kickstarter campaign started for vmb members to buy the hardrock :thumbsup:
     
  14. smartone

    smartone VIP Whale

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    Ha! That's the thing... KC and Auggie did a great job of outlining the situation... who would spend that kinda dough for that kinda earnings, as in negative... and what would someone to do to drive more revenue? The place is very well maintained, IMHO and the pool area is one of the finest in town. I'm assuming you'd need to get the average room rate and occupancy up, though the place has been fuller lately... they run an awful lot of cut rate promotions for the rooms.

    Gaming revenue, I'm sure has a huge room for improvement, but how to improve that? It's not like other properties are knocking the ball outta the park in gaming revenue. Cue the folks who will suggest the 1958 philosophy here! They flat out over-built the place and it's off-strip location increases the challenge. UNLV's stadium plans are still moving forward for the land just south of the Hard Rock at Paradise and Tropicana, but even if that comes about, what that's do?

    This place is carrying a crushing load of debt.
     
    Last edited: May 14, 2014
  15. paperposter

    paperposter VIP Whale

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    there making there money on conventions right now

    every time im there tons of conventions
     
  16. Auggie

    Auggie Dovahkiin

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    Yeah their debt is pretty much out of hand now and there isn't any way to recover: since the economic downturn there were years they were losing over $100M just to stay open... one of their "best" years was only losing about $30M.

    To be realistic because of their size and location if they had a total reversal of fortunes they would be pretty lucky to be making $20-30M a year in profit - thats just what they could reasonably expect... and since the article says their minimum annual interest rate is 3.5% (Libor minimum of 1.5% +250 points) $902M will generate $31.5M a year just in interest, so they have no way out of debt outside of somebody pumping in a whole lot of money or selling off a whole lot of assets.
     
  17. Viva Las Vegas

    Viva Las Vegas Ramblin' Gamblin' Man

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    Land Sale Comparable Analysis
    We believe the land is worth $10 to $12 million per acre...

    The bidding war for Aztar Corp, owner of the Tropicana, is indicative of the desirability and value of prime Las Vegas sites.

    Our deal with Boyd Gaming, also on the Strip, was announced in January at $15 million per acre. Land values in Las Vegas continue to increase dramatically and prime sites are in tremendous demand. Therefore, we believe our land valuation is in line with comparables and justifiable.

    2014 Reality:

    The sale by Boyd Gaming Corporation of the 87-acre Echelon site to the Genting Group for $350 million — roughly $4.02 million an acre — gave analysts an idea of what property on the Strip might be worth in today’s market.

    We’re long past the 2007 apex when owners of New York’s Plaza Hotel paid Phil Ruffin $1.2 billion — about $34 million an acre — for the aging New Frontier. The old casino was imploded and when the credit markets dried up, so did plans for a $5 billion resort version of the Plaza.


    Speculative bubbles, after the money's gone, same as it ever was.....

    [YOUTUBE]o7pVjl4Rrtc[/YOUTUBE]
     
  18. BackInVegas

    BackInVegas VIP Whale

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  19. smartone

    smartone VIP Whale

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  20. dvandentop

    dvandentop VIP Whale

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    Cant wait to read the old post once on pc
     
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