A group of bondholders holding a majority stake in two outstanding issues by Hollywood Casino Shreveport riverboat casino may force the company into bankruptcy to sell the assets and reclaim their investment, according to one of its members. The bondholders are aggrieved becausePenn National Gaming, which acquired the property, is refusing to honor a change of control put to take out the bonds at 101.
The bonds, both 13% first mortgage notes of '06, were last seen bid at 73, according to one dealer, though an analyst believes they would actually trade at a lower price.
The investors insist that a sale will make the bonds whole, and prevent Penn National from "trying to steal the company on the cheap," said the committee member.
Andrew Susser, head of high-yield research at Banc of America Securities, says bondholders have a legitimate grievance. "Some bondholders got irritated by Penn's consent solicitation, which offered them no money by asking them to waive their right to the put." Bondholders rejected that solicitation, forcing an "event of default" which gives the bondholders the right to accelerate the notes, which would force a bankruptcy and a liquidation of the assets. B of A was an underwriter on both Shreveport issues.
The bondholder group, led by AIG Global Investment Corp and Columbia Management Group, has hired Milbank, Tweed, Hadley & McCloy to represent it in negotiations. Bob Moore, the group's attorney, would not comment on the substance of the negotiations. Tom LaPointe, portfolio manager at Columbia, also declined comment. A call to Tom Reeg, gaming analyst at AIG, was not returned.
Calls to Bill Clifford, Penn National's cfo, were referred to Joe Jaffoni, an outside spokesman for the firm, who did not respond by press time last Friday morning.
Whether a sale will enable bondholders to recover par remains an open question. In a recent research report,John Mulkey, analyst at Bear Stearns, argued bondholders would fare better by giving Penn National a chance to turn the property around.
B of A's Susser, who recently moved from an "unattractive" to a "neutral" rating on the bonds, sees the property as salvageable. "The physical plant is brand new. With minimal [capital expenditure], there's still a fair amount of value there."