Rohnert Park Update – Poor Economy Effects Planned Casino

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http://www.pressdemocrat.com/article/20081028/NEWS/810280309/1350?Title=Rohnert_Park_casino_plan__dealt_setback__by_economy

Rohnert Park casino plan dealt setback by economy
Experts say nation's credit crisis raises doubts over construction financing

By CLARK MASON
THE PRESS DEMOCRAT

The declining fortunes of a Las Vegas casino company allied with a Sonoma County Indian tribe are threatening to further delay a proposed billion-dollar casino resort next to Rohnert Park.

The downturn in the economy has hurt revenues in the nation's gambling and entertainment capital and with it the ability of Station Casinos to build casinos.

The corporation is a longtime partner with the Federated Indians of Graton Rancheria to develop and operate the major casino-hotel on Rohnert Park's western edge.

The project has been stalled for five years by a protracted federal environmental review and more recently a legal challenge by opponents. The tribe still needs to obtain a state gaming compact.

Even if the those issues are resolved soon, financing for construction appears elusive.

"The capital markets are basically closed to gaming operators at the moment, for two reasons: The bank crisis and, second, the cost of capital," said Peggy Holloway, senior credit officer with Moody's Investors Service in New York. "Station doesn't have any excess cash, or liquidity to fund new projects."

Lori Nelson, a spokeswoman for Station Casinos, said Monday "we want to acknowledge anyone operating today in a retail environment is going through challenging times, based on current economic conditions. However, Station Casinos is committed to the project moving forward."

She declined to estimate when it would break ground, and analysts say it's an open question as to when construction money could be available.

"It's hard to go to market and raise debt to build, or expand," said Ben Bubeck, a credit analyst who specializes in the gambling industry for Standard & Poor's, a bond rating service.

The timing to build the Rohnert Park casino is unclear, he said, along with two other casino projects Station Casinos has planned with tribes near Chico and Madera, north of Fresno.

The gambling industry once was considered relatively recession proof, but gaming revenues are down on the Las Vegas Strip nearly 7 percent through August compared to the same period in 2007. Jobs have been eliminated, and hotel room rates have been cut.

Several high-profile projects have been delayed, including MGM suspending work on its $9.2 billion CityCenter project on the Strip and Boyd Gaming Corp. postponing its $4.8 billion Echelon mixed-use project.

Some Indian casinos in Southern California have been forced to lay off workers or scale back expansion plans. In Sonoma County, River Rock Casino, owned by the Dry Creek Pomo tribe, last month shelved plans to raise $600 million for an expansion. Instead, casino officials said they would try to raise the money in smaller increments and expand in stages.

But even that remains uncertain in light of River Rock's slumping revenues and profits and credit problems.

"Difficult times in corporate gaming are going to have a significant impact on tribes' ability to borrow," Frank King, managing director of tribal banking for Merrill Lynch, said in a conference call sponsored by the Native American Finance Officers Association.

At one time, Rohnert Park officials were predicting the Graton Rancheria's casino would be open by 2007. Earlier this year, the head of the Friends of the Graton Rancheria predicted the casino, resort and entertainment complex, which could cost as much as $1 billion, would break ground by this fall and be completed in late 2009, according to the North Bay Business Journal.

But the fate of the tribe's project is linked to the financial health of its partner Station Casinos, which has experienced a 6 percent decline in revenues in the first six months of this year. Net revenue declined from $735 million in the first half of 2007 to $691 million this year.

Station Casinos was a publicly traded company until 2007 when it converted to private ownership with a highly leveraged buyout that as of June 30 left it with $5.5 billion in debt.

The company owns and operates 13 casino and entertainment facilities in Las Vegas that cater to local residents and also holds a 50 percent joint venture interest in five casinos. It is opening its newest property, the $662 million Aliante Station Casino in Las Vegas, on Nov. 11.

In addition, the company has a lucrative contract with the United Auburn Tribe to manage its Thunder Valley Casino east of Sacramento. But that expires in 2010.

In recently downgrading Station Casinos' credit rating, Standard & Poor's noted some favorable view of Stations Casinos' long-term growth prospects. But the ratings agency said market conditions are likely to remain challenging, at least through the first half of 2009.

There is always the possibility for the Graton Rancheria to seek financing on its own or with a new partner, said Standard & Poor analyst Bubeck.

Graton Tribal Chairman Greg Sarris declined comment.

But some experts say the tribe's ability to get financing without Station's backing could be difficult.

"I know capital markets well, in terms of issues with raising money," University of Nevada-Las Vegas finance Professor Michael Sullivan said Monday. "An unproven tribe, or even an outfit that's proven like Station, their ability to borrow large sums of money for projects is not good now."

Two years ago, Sullivan said, chances of financing a billion-dollar casino in Rohnert Park were better.

"Maybe two years from now," he said.

You can reach Staff Writer Clark Mason at 521-5214 or clark.mason@pressdemocrat.

com.