|By Mike Wereschagin, The Pittsburgh
Tribune-ReviewMcClatchy-Tribune Regional News
Nov. 24, 2009--Revenue at Detroit businessman Don Barden's casinos plummeted during the recession, along with the fortunes of casinos across the country.
Majestic Star Casinos filed for bankruptcy Monday to prevent creditors from seizing its assets, although its owner says it has plenty of money to pay winners at its four casinos.
The company, which is owned by Barden and once held the license to open a casino in Pittsburgh, listed $771 million in liabilities and $402 million in assets in the bankruptcy filing. The company has been in default of its loans since missing a $24 million interest payment more than a year ago.
A hearing on Majestic Star's petition, which could protect the company from creditors for as long as 18 months, is scheduled for today in Delaware.
"Everything will be business as usual," Barden said. Though there will be "some changes" to the company's structure, Barden said it is too soon to determine what those will be.
"We will come out a stronger and better company," he said.
The Pennsylvania Gaming Control Board awarded Barden the sole Pittsburgh slots license in 2006, but he had to relinquish it in 2008 when his financing package collapsed midway through the North Shore casino's construction. An investment group led by Chicago developer Neil Bluhm took control of the project, kept Barden as a minor partner and opened the renamed Rivers Casino in August.
Greg Carlin, CEO of Rivers Casino, said Barden's stake in the casino isn't connected to the company that declared bankruptcy. Rivers Casino will not be affected, he said.
An internal report for state gambling regulators, prepared before Barden won the license and disclosed by the Tribune-Review in 2007, said Barden's casinos "demonstrated weak financial performance." A state grand jury is investigating the board's decision to give Barden a casino license. Board members have said they did nothing improper.
"Reality caught up to him," said Jake Haulk, president of the Allegheny Institute for Public Policy, a Castle Shannon policy group. "We looked at this situation when he had to give up his license to the Pittsburgh casino and we testified on that down at a (state) Senate hearing. He was struggling at all of his casinos. He had bills he couldn't pay."
When the recession hit, Barden's debt load became too much for his company, Haulk said.
"I think they just expanded too fast. They were too highly leveraged. It's like buying houses to flip. That's a great business to be in as long as the market's strong and you can keep turning them," Haulk said.
A bankruptcy judge could leave Barden with little of the gambling empire he expanded into Indiana, Mississippi and Colorado, said Gregg Klein, a gambling industry analyst with BNP Paribas in New York. Barden's Las Vegas property, Fitzgerald's Casino & Hotel, is not involved in the bankruptcy, said Majestic Star Chief Operating Officer Mike Darley.
"If the debt holders are going to take a significant discount (on what they are owed), the equity in the assets has zero value," Klein said. The judge's control of the process leaves Barden "on the sidelines looking in."
Revenue at Barden's casinos plummeted during the recession, along with the fortunes of casinos across the country. Majestic Star casinos owe as much as $650,000 to gamblers, and have pledged as much as $3.5 million on progressive slot machines, whose jackpots increase as more gamblers use them.
The bankruptcy judge yesterday protected those commitments by authorizing the casino to pay them. The company has $64 million in cash, more than enough to pay gamblers, Barden said. The judge said the company could pay some of the 2,600 employees of the casinos who had not been paid wages.
"We're in a strong cash position," Barden said.
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