Nov. 18, 2008 --A growing cash crisis won't close Greektown Casino, but work could stop soon on its nearly finished hotel, dimming hopes for reversing the fortunes of the perennial third-place finisher in Detroit's casino competition.

The Michigan Gaming Control Board told a federal bankruptcy judge Monday that the contractor working on the 400-room hotel set to open in February won't get paid for millions of dollars worth of work unless Greektown's performance improves.

Gaming board officials said the casino owners could run out of cash in December.

Greektown general contractor Jenkins Skanska has tried to reach an agreement with Greektown that guarantees it will be paid for its work through completion. Greektown filed for Chapter 11 in May.

"It's very possible that Jenkins Skanska will exercise its rights under its construction contract to suspend operations until it receives assurances that" Greektown "has money," said Ronald Rosen, an attorney representing Greektown's general contractor at the bankruptcy hearing. "We're very worried."

The casino needs $22.3 million in the next four months in order to complete construction, the state gaming board said.

Lawyers for the casino say they have the cash they need to finish the hotel and continue operating.

"It's absolutely not true that we're running out of cash," Greektown spokesman Roger Martin said after the hearing.

Conservator is possible

Damian Kassab, president of the Michigan Gaming Control Board, said the board will ask the court to clear the way for it to yank the casino's license, appoint a conservator to run the casino and order a sale of the property.

Handing the casino to a conservator will be "completely invisible" to customers, Kassab said.

Greektown officials recently started taking reservations for the hotel and it is already booked for the NCAA Final Four men's basketball championships in April. The hotel also has booked more than a dozen weddings for 2009.

Kassab said Greektown, which has no chief executive officer and has a board of directors that is being restructured, will benefit from having a conservator appointed to run the operation for the remainder of the bankruptcy.

"If anything, I think things would improve dramatically," Kassab said. "Clearly they need some leadership."

Declining revenue

Greektown has been the poorest performer of the three Detroit casinos.

Since it filed for bankruptcy, its revenue has continued to decline each month from the previous year, with its lowest performance the month after it filed for bankruptcy.

Greektown earned $23.2 million in revenue in June.

In October, its revenues were $24.7 million, compared with MotorCity's $37.9 million and MGM Grand Detroit's $48.4 million.

The gaming board would immediately begin a search for an interim chief executive officer, Kassab said.

Gaming analyst Jane Pedreira, formerly with Lehman Brothers, said appointing a conservator doesn't always work.

The process adds an extra layer of bureaucracy, confusion and expense to the bankruptcy process.

"It adds a transition period," Pedreira said. "I personally think it's unnecessary to bring another layer of management unless you can prove the current management is incompetent or lacking in integrity."

Change in leadership

Kassab said it's not a good environment to sell a casino whether the casino is put up for sale now or later. But a change in leadership will help make the operation more attractive.

The board said that the casino's financial position is deteriorating and that the casino will not be able to file a viable plan of reorganization.

The casino, which has until Dec. 15 to file a plan, was in court Monday asking for a 60-day extension of that deadline.

Creditors, bondholders, the City of Detroit and the Michigan Gaming Control Board all filed motions asking U.S. Bankruptcy Judge Walter Shapero to deny the extension.

The groups, which together are owed $755 million, testified Monday that the casino is dragging its feet on the bankruptcy and that adding an extension to the current deadline will delay the bankruptcy process further.

They said they have been kept in the dark about the casino's plans to exit bankruptcy.

Shapero scheduled a hearing for Nov. 25 to hear what steps the casino has taken to get itself out of bankruptcy. He is expected to make a decision on the extension following the hearing.

The Michigan Gaming Control Board alleged in documents filed in U.S. Bankruptcy Court that:

--Conway MacKenzie & Dunleavy, a financial consulting firm that advises Greektown, has told the gaming board analyst that Greektown cannot guarantee that it will have sufficient cash to pay construction costs after December.

--Greektown has missed financial goals set by the state for almost eight months and has recognized that it would be in default for two years with no projected end in sight.

--Greektown also owes a $4-million service fee to the city, which will add an additional burden to Greektown's cash flow. Greektown has had to draw down $15 million of the $150 million in emergency bankruptcy financing to pay fees to the gaming board, the city and to pay for operating costs.

Contact MARGARITA BAUZA at 313-222-6823 or [email protected].

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