Casino

Twin River in Lincoln pays the state nearly 60 cents out of every dollar gambled and lost on video-gaming machines. Last month, the slot parlor recorded video-gaming net revenue of $38,967,023.

>

The Providence Journal / Bob Thayer

PROVIDENCE — The owners of Twin River are offering the state upwards of $500 million up front in return for slicing by more than half the percentage of money the state gets from the slot parlor.

The offer is part of Twin River’s plan to solve its own “dire” financial crisis. Twin River has missed loan payments to its bank and is in danger of falling into bankruptcy. “The situation is dire. We are standing on the edge of a precipice,” Twin River spokeswoman Patti Doyle said yesterday.

But the state has its own problems and lawmakers are now only days away from voting on a $425-million deficit-closing plan for next year that will cut state jobs, freeze municipal aid and lop thousands of people off the state’s health and welfare rolls.

Meeting with House Speaker William J. Murphy earlier this week, the Twin River delegation offered the $500 million if the state would reduce its cut of the slot revenue from 61.45 percent to 25 percent.

Murphy did not close the door on further discussions with the principals in BLB Investors, a partnership that includes two of the original developers of the Mohegan Sun casino in Connecticut.

“If they call me and need to meet, I’ll meet with them,” he said in an interview yesterday.

But when asked if he anticipated a budget-saving deal between now and the House vote on the new $6.8-billion spending package on Wednesday, Murphy said: “It’s not going to happen… I think as businessmen they are very clever. You know, they know that we are in a financial bind right now, but it didn’t make sense to me at this point to drop the state’s rate” without a hard look at how many millions of dollars a reduction of that magnitude might cost the state over time.

“If a proposal comes forward that looks favorable … and the governor is on board and the Senate is on board, we would take a look at it,” Murphy said, “but at this point in time, on June 12th, I am not in favor of decreasing the [state] share for an upfront payment” and “nobody said they would drop a check into the [general fund] tomorrow.”

“I think it’s just a way for them to deal with their creditors,” he said.

BLB’s offer was made at a critical time for the General Assembly, which faces a tough vote next week on the state budget, and for Twin River, which has been struggling to pay its lenders and avoid bankruptcy court.

Gambling is the third biggest source of state revenue, behind income and sales taxes, which gives the state a huge stake in Twin River’s well-being. The state anticipates $261.4 million from Twin River alone in the fiscal year beginning July 1, and that does not include any of the additional money that newly approved 24-hour gambling on weekends and holidays is expected to generate.

The state gets close to 60 cents out of every dollar gambled and lost at video-gaming machines at Twin River and Newport Grand. Twin River has 4,751 machines and Newport Grand has 1,120.

Twin River recorded video-gaming net revenue of $38.9 million last month, a gain of $4.7 million, or 13.9 percent, over the same month a year ago. But there were more machines in use, 4,750 on average last month, than in May 2007 when net revenue of $34.2 million came from a daily average of 4,664 machines.

On Tuesday, the Department of Revenue signed off on an agreement that allows Twin River to test market a player-rewards program, similar to those offered in most full-scale casinos, over a 92-day period to begin later this month.

Under the agreement with the revenue department, Twin River can give away up to $1.5 million in free play during the trial period, then up to 4 percent of its “net terminal income” from the same month a year earlier. Should the move fail to live up to revenue expectations, the agreement requires the owners to reimburse the state, up to a point, for lost tax revenue.

But that customer-building move may not be enough to satisfy Twin River’s lenders.

Twin River is under pressure from its chief lender, the Merrill Lynch Capital Corp., to generate enough money to meet its loan payments. Twin River’s owner, UTGR Inc., missed a loan payment in early March. UTGR is a subsidiary set up by BLB Investors LLC to operate Twin River. BLB Investors is itself owned jointly by Kerzner International Ltd., Starwood Capital Group and the Waterford Group.

It has been operating under a standstill pact that has delayed legal action to collect on $577 million in outstanding loans tied to Twin River’s renovation and operation.

“We spent more on the construction of Twin River than we anticipated,” Doyle said.

The standstill pact, known as a forbearance agreement, initially had a June 30 expiration date, with options for two additional 30-day extensions. The agreement has been extended several times and its deadline has been previously reported by Twin River as Aug. 19 and Aug. 29.

The deadline now appears to be July 31. In the meantime, the slot parlor will operate normally.

Twin River representatives and administration officials talked earlier this week about ways the slot parlor’s operator could make enough money to satisfy its lenders. “We’re meeting with everyone,” said Doyle, the Twin River spokeswoman.

The heads of the state Department of Revenue, the Lottery Commission and the Department of Business Regulation met as recently as Monday or Tuesday this week to review Twin River’s finances and operations, confirmed Jeff Neal, Governor Carcieri’s spokesman.

“The state has been in fairly consistent conversations with Twin River,” he said. “[Agencies] have been monitoring very closely BLB’s operations so they can protect the interest of the taxpayers.”

Merrill Lynch representatives did not return messages left yesterday seeking comment.

In effect, Twin River now has until July 31 to work out a permanent financing structure” that would satisfy the lenders, Doyle has said previously.

It also has to establish a payment schedule with other creditors, chiefly Dimeo Construction Co., according to Doyle.

Dimeo was the primary contractor on the $225-million project that transformed the aging dog track into the Twin River slot parlor, replete with new dining facilities and an event arena. The Providence contractor recently placed liens on the property seeking $6 million for some of that work. Other contractors followed Dimeo’s lead, filing liens for more than $1 million in all.

The slot parlor’s inability to make the loan payment triggered ratings downgrades on UTGR by Standard & Poor’s Corp., which now rates the company’s corporate debt as CCC-.

“The downgrade reflects our ongoing concerns about a potential bankruptcy filing as the company reportedly continues to negotiate a forbearance agreement with its lenders,” according to a Standard & Poor’s report on March 21. “While we believe that incentives exist for the company and its lenders to reach an extended agreement, the new ratings better reflect the near-term risk factors for a potential bankruptcy filing if the parties are not able to come to an agreement.”

Ben Bubeck, of Standard & Poor’s, said in March the rating agency would maintain its CCC- rating on UTGR until the two sides reach an agreement or the lenders take formal legal action to collect the money they’re owed.

Neither Bubeck nor Standard & Poor’s has updated its assessment since then, according to an e-mail sent to The Providence Journal this week from a Standard & Poor’s representative.

While the creditors and the ratings agency wait, UTGR is pressing for more changes at Twin River.

“Everything is on the table,” Doyle said, without going into specifics. “We are open to any and all options.”

The state, however, is not, according to Neal, the governor’s spokesman.

“Rhode Island is in an advantageous position with regard to our relationship with Twin River,” Neal said. “It may be the case from BLB’s perspective that everything is on the table. We are pleased to be receiving more than 60 percent of the gambling revenues from Twin River. The state has not made in any way any proposal that would change the current arrangement.”

In response, Doyle said: “The intention was to start a dialogue because we really believe that we are in dire straits. We liken this to being on the precipice and we are about to fall over, so we wanted to be proactive and start a dialogue with the leadership and the governor and make sure everyone understood our financial condition.”

Asked how Twin River’s owners could afford to offer the state a $500-million upfront payment when they can’t afford to pay off their outstanding loans, Doyle said: “If we are able to reduce our tax rate overall, the lending community will look more favorably on our relationship with the state” and presumably be “willing to advance the upfront payment.”

If the state were willing to drop its share of the take — which is more than twice the percentage what the Connecticut casinos pay their home state, she said — Twin River’s lenders “would consider it a more competitive arrangement in the marketplace and they would consider it a more stable enterprise going forward.”

Both Murphy and Senate President Joseph Montalbano, whose Senate districts includes Lincoln, met on Tuesday with Len Wolman, a principal in BLB Investors and the Hartford, Conn.-based Waterford Group, which is one of the lead partners in BLB, and one or more of his financial advisers from the New York-based Lazard Ltd.

Murphy said he came away with several impressions, namely that the owners “bit off more than they can chew” when they bought the former Lincoln park and poured hundreds of millions of dollars into renovations. Even today, “there is no problem with the revenues.” He said Twin River’s problem is with its own debt.

Acknowledging the state’s heavy reliance on gambling revenue from Twin River and Newport Grand, he said: “At this point, I am concerned. I am not alarmed yet.”

Asked if there is anything else the state can do, he said, “The list is out there of what the state can do” — including giving the go-ahead for 24-hour gambling, seven days a week. But having just recently approved overnight gambling on weekends and holidays only, Murphy said, “I am not willing to do that,” and full-scale casino gambling — such as the introduction of table games — “may be on a wish list, but that has not been brought up.”The budget

•Education officials say the budget approved by the House Finance Committee will mean bigger classes, fewer professors, fewer athletic programs and layoffs at URI.

•Advocates of attracting filmmakers to the state say imposing limits on the availability of tax credits will put Rhode Island at a competitive disadvantage with its neighbors.

Stories, B1

pgrimald@projo.com