Peter Schnitzler, The IBJ
pschnitzler@ibj.com
Indianapolis-based Centaur LLC, owner of Anderson's Hoosier Park horse track and casino, missed a $13.4 million interest payment due Tuesday on its more than $400 million in outstanding debt, putting the company in default with its lenders.
In response, New York-based debt rating service Standard & Poor's immediately downgraded Centaur from CCC to D, or "default."
Centaur CFO Kurt Wilson told IBJ on Thursday morning that his company hopes to roll the $13.4 million payment into a larger restructuring of its total debt. Centaur has been trying to negotiate new terms with its 30 lenders since July, he said. The company's next quarterly interest payment, also for approximately $13.4 million, is due in late January. Centaur's debt is scheduled to mature in 2012.
Wilson said Tuesday's default will have no immediate effect on Hoosier Park's operations. However, the default is another negative sign for the company, which has acknowledged concerns over the facility's financial viability.
"This is really just an issue where cash flows from our current healthy businesses don't support the [parent] company's debt structure," Wilson said. "We need to address that and make sure the problem is handled."
"Our aim is to reduce the outstanding debt, and the cost of that debt, so the company can be on solid ground going forward," he added.
Centaur announced the default Thursday morning via a press release. Centaur had previously revealed that it's been negotiating for months with its 30 lenders for a restructuring of its crushing debt load.
After winning legislative approval in 2007 to install slot machines at Hoosier Park, the company borrowed $400 million to pay Indiana's $250 million license fee and spent another $150 million on mandatory facility upgrades to its racino. Indiana used the license fee's proceeds to help underwrite property-tax relief for struggling homeowners.
Centaur said the default also won't have an impact on the company's operations in Colorado, where it owns Fortune Valley Hotel and Casino in Central City, west of Denver.
Centaur announced it also has filed a voluntary Chapter 11 bankruptcy petition in Pennsylvania for two subsidiaries that hope to develop a racino there. Centaur has long pursued development of the project, called Valley View Downs and Casino, 55 miles northwest of Pittsburgh, but the project stalled when regulatory approvals and financing there fell through last year.
Wilson said Centaur still hopes to erect Valley View Downs once its subsidiaries emerge from bankruptcy in the Keystone State.
"Our focus is getting this done quickly," Wilson said. "Get Chapter 11 behind us and take advantage of the thaw in the marketplace and interest in getting this [Pennsylvania] project done."
The Indiana Legislature has been reviewing Centaur's situation in its Interim Gaming Study Committee. Centaur has repeatedly argued that Indiana's tax structure unfairly punishes racinos, which must fork over 47 percent of their gambling revenue to the taxman. Indiana's riverboat casinos pay taxes of about 35 percent. Most of the difference comes from 15 percent in taxes racinos pay to subsidize the horse-racing industry.
Centaur has been pressing legislators to change Indiana's gambling tax law. Hoosier Park General Manager Jim Brown said many have been responsive to Centaur's complaints about "parity."
"We believe this has been met with successfully in terms of the recognition that there is inequity for a segment of our industry," Brown said. "And we remain cautiously optimistic that in the coming session, or a subsequent session, action will be taken in that area."
Wilson said that Centaur's ability to restructure its debt and remain a viable company is not dependent on changes to Indiana's tax law. But S&P analyst Benjamin Bubeck, who follows Indiana's gambling industry, is skeptical.
Centaur's primary problem is a debt load that's so large it can't be supported by the company's current cash flow, Bubeck said. Unless lenders agree to forgive some of that debt, or Centaur can increase its revenues, that problem can't be solved by an extension of loan maturity.
But Brown pointed out that growing Hoosier Park's sales would mainly increase the company's tax burden. Centaur's racino currently generates about $200 million in annual gaming revenue. Once that threshold is breeched, gaming revenue above $200 million in Indiana is taxed at 54 percent.
"It doesn't seem likely, given the current debt balance, that they can remain viable without a change in tax structure," Bubeck said. "The debt balance would make that a challenging proposition."