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Echelon latest project snagged by financial problems

Oct 2, 2008 8:25 PM

by Staff & wire reports | The slowing economy and deepening credit crunch continue to take its toll on planned casino projects in Las Vegas and beyond.

Last week, Morgans Hotel Group announced that it has amended its agreement with Boyd Gaming Corporation regarding their joint venture to develop a Mondrian and Delano hotel within Boyds Echelon development on the site of the old Stardust.

The amended agreement, among other things, provides for the following: the immediate return to MHG of its $30 million deposit provided for the project, plus interest, the elimination of MHGs future funding obligations of approximately $41 million, the elimination of any obligation by MHG to provide a construction loan guaranty, and sole control by MHG over the use of its Delano and Mondrian brands in connection with the project.

The amended agreement also limits the amounts that MHG and Boyd are required to continue to fund for pre-development and related costs to approximately $420,000 each. The deadline to obtain construction financing has been extended to December 31, 2009. Each party has the right to terminate the joint venture for any reason prior to December 31, 2009. Additionally, the terms of the management agreement, which provide for an MHG affiliate to operate the joint venture hotels upon their completion, remain unchanged.

Translation: MHG can pull the plug if it feels economic conditions become too burdensome.

"We believe that the amended agreement provides substantial flexibility and represents a sensible framework for MHG to move forward with the Echelon project on the basis of a vastly reduced capital commitment," said Fred Kleisner, President and Chief Executive Officer of MHG. "We will continue to evaluate the project as we move forward and continue to act in the best interests of our stockholders."

The decision to place the Echelon project on hold wasnt a surprise to industry experts.

"Now is one of the worst times to raise capital because lenders are willing to lend less, and the cost of capital is significantly more expensive than it was a year ago," said gambling analyst Andrew of Zarnett of Deutsche Bank.

Earlier this summer Australian billionaire James Packer gave up on his plan to build a $5 billion mega resort on the site of the old Wet n Wild water park, just south of the Sahara Hotel.

For the complete story and additional details, check out next weeks Gaming Today beginning Tuesday.