Coast Casinos betting on Wall Street

June 04, 2002 2:25 PM
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With gaming stocks beating the Dow averages these days, Coast Casinos is rolling the dice on Wall Street.

            But hold onto your wallet; Coast’s initial public offering probably won’t happen for at least two months.

             “We’re waiting for the SEC to review (the IPO) and there’s a 30-day response period after that,’’ said a top exec for the privately held company.

            The balance sheet looks pretty good so far. Last year, Coast generated $518 million in revenue, a 15.4 percent annual growth rate over 1997. Its cash flow of $126 million was up 33.4 percent.

             Chairman and CEO Michael Gaughan holds 31.3 percent of the common stock. Combined with the holdings of three others ”” Jerry Herbst, Tito Tiberti and Franklin Toti ”” the quartet controls 62 percent of the shares.

            It is not known if those percentages will change with the IPO valued at up to $200 million. Coast says only that it intends to use the proceeds to pay down debt and fund expansion.

            Coast ”” which is simultaneously dropping its “Resorts” moniker ”” is focusing like a laser on the Las Vegas market.

            And why not? A recent survey by the convention authority found that half of Clark County’s adult residents gamble at least once a week and 41 percent budget at least $25 per visit for an annual total of $1.77 billion.

            Three-quarters of locals say they prefer to gamble at locations off the Strip. So the company has catered to the crowds with major expansions under way at its Orleans, Gold Coast and, soon, Suncoast properties. A new project, South Coast, is on the drawing boards for Silverado Ranch Road and I-15, south of Blue Diamond Road.

            Another big venture is the construction of a 9,000-seat sports and entertainment arena at The Orleans. Spokesman Steve Stallworth said work is on track for a May 2003 opening, and talks are proceeding with several hockey leagues and teams. 

            “We will absolutely have a hockey team. The only question is who will own it,’’ he said.

            To keep the mojo going, Gaughan & Co. needs an infusion of cash ”” as well as liquidity for the partnership that receives no dividends. According to its SEC filing, Coast plans to keep the no-dividend policy as it trims debt.

            The gaming company has $325 million in outstanding aggregate principal amount with 9.5 percent senior subordinated notes. It currently has a $182 million line of credit.

            “Michael is very debt averse,’’ one insider told GamingToday in explaining the company’s financial strategy.

            Debt notwithstanding, analysts say Coast’s growth curve looks bullish. The firm is planning a new resort for next year.

            Operating income in the past four years jumped from $17.6 million to $86.2 million. Operating revenue soared from $292 million to $518 million. Net income, which was $4.6 million in the red in 1997, climbed into the black with a $36.4 million profit last year.