By Peter Schnitzler, The IBJ
pschnitzler@ibj.com
Indiana riverboat casinos don't go up for sale every day. So when one becomes available, it's bound to spark interest.
Hence, the dilemma facing Centaur Inc., the Indianapolis-based casino developer.
Crestview Hills, Ky.-based Columbia Sussex Corp., the owner of Evansville's Casino Aztar, is attempting to sell the riverboat and affiliated hotel. It's a rare opportunity. And Centaur, which raised $1 billion in October to fund pending gambling projects in three states, has a history of seizing lucky breaks.
That's how Centaur got the chance to enter the "racino" business last spring. After years of lobbying, legislators desperate to provide voters with property-tax relief voted to permit 2,000 slot machines at each of the state's two pari-mutuel horse tracks, Centaur's Hoosier Park in Anderson and South Bend-based Oliver Racing's Indiana Downs in Shelbyville.
Centaur is using $250 million of the $1 billion it raised on Wall Street to pay the state's license fee. It earmarked another $150 million to expand and equip the Anderson gambling venue. Most of the remainder is slated for the Valley View Downs racino it plans to build near Pittsburgh.
Now, Centaur must decide quickly whether Aztar is worth stretching to attempt to buy, and whether the Indiana Gaming Commission likely would approve the purchase. New York-based Standard & Poor's Corp. estimates Aztar will fetch $200 million to $250 million.
Centaur declined to make executives available for comment. In a written statement, company spokeswoman Susan Kilkenny said: "Centaur is fully engaged in the opening of Hoosier Park Racing & Casino and the development of Valley View Downs in Pennsylvania. We are aware of the situation in Evansville and continue to monitor its impact on the Indiana gaming market. We generally do not discuss potential development opportunities as a matter of policy."
But the company almost certainly is considering it internally. Indiana Gaming Insight Publisher Ed Feigenbaum said Centaur's buying the Evansville casino would make sense on several levels. For starters, it's an Indiana-based company with a proven track record before the gaming commission and a strong understanding of the state's gambling market. Further, Feigenbaum noted, Centaur employs Jim Brown as a general manager of Hoosier Park. Brown used to run Casino Aztar.
On the other hand, Centaur already has a lot on its plate. Most of the $600 million remaining from the $1 billion it raised is slated for development of Valley View Downs racino 55 miles northwest of Pittsburgh. The rest is earmarked to retire $30 million in debt related to its 2003 acquisition of Fortune Valley Hotel and Casino in Central City, Colo., and to upgrade Centaur's network of OTB parlors in Indianapolis, Evansville and Fort Wayne.
And given the global credit crunch, it's far from certain that Centaur could raise more money for the acquisition.
"This could stretch a small company, particularly in today's credit markets. If they could get it at a fire sale price, it makes sense. But they don't want to overextend themselves," Feigenbaum said. "They have to debate internally whether the opportunity costs are worth whatever it might mean in terms of distracting them from the larger western Pennsylvania project, and from the [Hoosier Park] racino."
It might be just too much for Centaur, added Benjamin Bubeck, a Standard & Poor's director who follows gambling.
"I just don't see how Centaur is positioned to raise those kinds of funds," he said. "Now is not the time to spread yourself thin on a $250 million acquisition."
Columbia Sussex purchased the Evansville casino in January 2007 as part of its $2.8 billion purchase of Phoenix-based Aztar Corp. The deal also included casinos in Las Vegas; Laughlin, Nev.; and Atlantic City, N.J.
Late last year, Columbia Sussex reversed course and announced plans to sell the Evansville casino, as well as the Tropicana Casino and Resort in Atlantic City. New Jersey had just refused to renew the company's license to operate the Tropicana because of staff cuts, tensions with unions and operating problems. Indiana law prohibits the gaming commission from granting licenses to firms that have lost their gambling permits elsewhere.
Columbia Sussex also is wrestling with debt woes. In December, its lenders struck a deal giving the company one year to get its financial house in order. They could have immediately declared the company in default on a $180 million revolving loan. Proceeds from both the Atlantic City and Evansville casino sales will be used to repay lenders.
Company spokesman Hud Englehart declined to comment to IBJ, saying, "We're under very strict confidentiality agreements, and we're not divulging any information at this time." Gaming commission Executive Director Ernest Yelton and Chairman William Barrett could not be reached for comment. Stephen Hilbert, whose Carmel-based MH Equity Investors provided $200 million of the $1 billion Centaur raised, also could not be reached.
Columbia Sussex has a strong incentive to close an Evansville deal quickly. Feigenbaum said the gaming commission could strip the company of its license as early as the end of March.
Evansville Mayor Jonathan Weinzapfel said he's heard directly from "a couple" of prospective Aztar buyers, and has heard about several more "through the grapevine." He refused to say whether Centaur was among the group.
Weinzapfel is eager to part ways with Columbia Sussex. He said that in the first decade after the Evansville casino opened in 1995, it was a great partner with the city, providing employment, buying goods locally, offering charitable donations, and contributing local taxes that paid for capital projects such as fire engines and street improvements. Casino Aztar funds even paid for transformation of a World War II landing ship that saw action at D-Day into an Evansville waterfront museum.
But under Columbia Sussex's ownership, Weinzapfel said, the casino has cut jobs and moved purchases to out-of-town vendors. He said the company also walked away from promises to refurbish the aging riverboat.
"We're hoping to get back to a casino partner that we can work with to meet mutual goals," Weinzapfel said. "That's not what we've had in the past year."