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Trump looks to junk bonds to cut interest expense

Dec 31, 2002 5:01 AM

Junk bonds, provided in the late 80’s by disgraced financial wizard Michael Milken, catapulted casino genius Steve Wynn to the heights of Las Vegas Strip development.

Now, Wynn’s Atlantic City nemesis, Donald Trump, is hoping to utilize the same financial vehicle to ease his money woes.

Having failed in May to attract a favorable response from junk bond dealers to his $470 million offering, Trump, the casino and real estate mogul, is hoping that a better market outlook and equally better operating results for his company, Trump Hotels & Casino Resorts Inc. (DJT) will be better received on Wall Street.

Trump said he plans to use the proceeds of the bond sale ”” assuming the sale is successful ”” to refinance about $242 million of Trump Castle 11.75% mortgage notes that mature at the end of 2003. He also plans to apply part of the proceeds toward other debt.

One of the reasons Trump failed to place the $470 million offering last May was because of a controversial move Trump made in the middle of 2001 when he threatened to not make payments on some $1.8 billion of debt unless the bondholders gave him a favorable break on the interest rates.

However, market analysts now feel that Trump’s timing for this offering will receive favorable treatment by investors. Said one analyst, "the timing couldn’t be better." He noted that the junk bond market has rallied in the past quarter.

An empty till

To paraphrase the late Illinois senator, Everett Dirksen, "A billion here, a billion there, and pretty soon we’re talking serious money."

That elusive billion is what has created the Florida dilemma. Legislators who strongly remember the opposition former Gov. Lawton Chiles offered to the many efforts being made by proponents of gambling expansion now feel the pressure of making ends meet.

Chiles solved the problem, temporarily, by raising taxes, a solution that will hardly set well with Gov. Jeb Bush and his fellow Republicans who have railed against tax increases.

Enter Hallandale’s Sen. Steve Geller, widely perceived as the most knowledgeable lawmaker on matters of gaming. He has filed a bill that would permit the state’s pari-mutuel operators (horse tracks, dog tracks and jai-alai frontons) to install slot machines. He and the tracks lobbyists suggest that the state’s take from these machines could rival the current revenue numbers from the state lottery. This form of gambling has been generating somewhere near $950 million.

Geller’s bill probably will short-circuit efforts to legalize casinos. Adding to the casino problem is the fact that the state’s voters have disapproved casinos on referendums held in 1978, 1986 and 1994.

Vernon reprieve

The license struggle between the N.Y. Racing and Wagering Board and Las Vegas businessman, Shawn Scott, continued over the weekend with a restraining order against racing regulators issued by a N.Y. State Supreme Court justice.

Last week, the regulators had ordered the closing of the trotting track, Vernon Downs, which was saved from closing its doors earlier in 2002 when Scott came to its rescue with a loan of nearly $9 million.

At that time, the racing board granted the track a three-month extension to its racing schedule provided the track’s "chief investors" applied for a racing license. Cited by the board was John Baldwin, described as a Scott business associate.

Baldwin failed to file for a license and insisted he didn’t need one. The board countered that since Baldwin controlled most of the finances of Shawn Scott, he must be licensed. Baldwin agreed he was a Scott business partner but that he had nothing to do with Vernon Downs.

And adding to the internal problems, two officers of the Vernon Downs operating company have resigned. Andrew W. Goodell, chief executive officer and president, and board Chairman David Jensen, submitted their resignations at a board meeting last Friday.

Boyd changes landscape

Louisiana’s gaming industry has prospered by the addition of riverboats over the past few years but that trend seems to have ended.

Contributing to the changing landscape is Boyd Gaming Corp. (BYD) and its operation of Delta Downs, the state’s newest "racino."

The success of Delta Downs has spurred competitors to attempt to benefit from the new game in town. Harrah’s Entertainment Inc. (HET), operator of both the land base casino in New Orleans, and riverboats, has closed on the purchase of Louisiana Downs in Bossier City. The company plans to expand the facility to house some 1,500 video lottery machines.

And a partnership, known as Peninsula Gaming, is building a new racetrack in St. Landry Parish to replace Evangeline Downs in order to become the location for the state’s newest racino.

Meanwhile, the state’s premier racetrack, Fair Grounds in New Orleans, will seek a change in existing gaming legislation that bars the track form participating in the slots craze.

Unexpected support

Recently, Magna Entertainment Corporation (MIEC) purchased two Maryland racetracks to benefit from its content opportunities but soon realized that a greater benefit would be the expected passage of legislation for racetrack slots.

Now, it appears, a similar situation is developing in the state of Texas. Magna Entertainment recently added Lone Star Park to its stable of tracks with little thought that gambling would be expanded there.

But, here comes a group called the Texas Racing Agri-Industry Council, involving both horse and dog breeders, that will petition the lawmakers to consider racinos. And boosting the proposal will be GTECH Holdings Corp. (GTK), principal provider of lottery equipment to the state.

GTECH is a partner with Harrah’s Entertainment Inc. and Keeneland Association in the ownership of Turfway Park in Northern Kentucky, and is involved in pushing slots for Kentucky’s racetracks. Successful legislation in Texas certainly wouldn’t hurt the lottery company’s efforts in Kentucky.

Adding political fodder is the recent announcement that Cliff Johnson, a longtime GTECH lobbyist, has been appointed as a senior adviser to Texas Gov. Rick Perry.

Hustler hustled

For Las Vegas gambler and Hustler magazine publisher Larry Flynt, the court decision must have felt like he was being scalped by the California Indians.

Flynt, owner of Hustler Casino, a Los Angeles card club, and others sued the California Gaming Control Commission and the California attorney general in November 2001 alleging that permitting certain table games at Indian casinos but prohibiting them at the state’s card clubs created a monopoly and put the card clubs at a distinct disadvantage.

Listed were such things as banked games, in which the house has a stake in the game’s outcome; percentage games, in which the housed collects a share of the amount wagered, and slot machines, as well as other high-stakes casino-type games known as Class III games.

A San Francisco judge initially ruled that the state’s gaming compacts with Indian tribes did not create an unconstitutional monopoly in violation of equal protection. Last week, the First District Court agreed, saying that the compacts, "are related to the fulfillment of Congress’ unique obligation toward Indians."

Costa Rica changing

Internet bookmakers, who found a haven in Costa Rica, have been looking to other Caribbean countries as a way of escaping what appears to be a movement to increase fees and taxes on the questionable activities.

For the past five years, sports books, manned by a number of illegal bookmakers who fled the U.S, to seek a location where they would be compatible with state laws, have been locating in Costa Rica to take advantage of the sub-tropical climate, cheap labor and people who spoke good English and could communicate with telephone clients.

But, a half-dozen years later, the local government has been salivating over the possibility of moving in on the books’ operations.

One major bookmaker, who has been visiting nearby locales for his operation, says he believes such countries as Panama and Belize will probably be favored locations should Costa Rica authorities begin playing hard ball.

The Insider

Gambling in Detroit seems to have leveled off, according to numbers issued by Michigan gaming regulators. For the month of November, revenues for the three casinos were down about 1%, the second straight month of decline. One of the reasons given has been the rebound of business at Casino Windsor, located across the Detroit River in Windsor, Ontario, Canada.

Magna Entertainment Corp. (MIEC) says it has renewed its distribution agreement with Youbet.com (UBET), an online live event and wagering company.

Venetian Casinos Resort LLC and Las Vegas Sands Inc. announced it had extended the expiration date for the exchange offer of their 11% mortgage notes due 2010 from Dec. 26 to Dec. 30, 2002.

GTECH Holdings Corporation (GTK) has signed a multi-year subcontract with Verizon Select Services Inc. to provide equipment and services for a fully integrated communications network system for the N.Y. Lottery.

Peppermill Casinos Inc of Reno, Nev., has taken over the operation of the Silver Smith hotel in Wendover, Nev., and has renamed it the Montego Bay Casino Resort.

John Connelly, founder of President Casinos Inc., has sold his one-third interest in the company to his grandson, Terry Wirginis.