Issue 222
December 13 - 19, 2004
Volume 4
page 1

This Issue

Gaming News

Magna Entertainment Corp. announces US$192 million project financing for Gulfstream Park and The Meadows

China gaming nod likely

Caribbean resort aims higher to attract high-rolling gamblers

Developers take next step toward building new Hancock County, Miss., casino

$4 Million Loan From Kennedy Funding Helps Developer Bring Gaming Enterprise to Mexico City


Show Time Lionel Richie Caesars Atlantic City..

Column What Does "Theoretical Payback" Tell You? By John G. Brokopp

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Magna Entertainment Corp. announces US$192 million project financing for Gulfstream Park and The Meadows

Magna Entertainment Corp.announced today announced that its parent company, MI Developments Inc. has agreed to provide project financing for the reconstruction of facilities at Gulfstream Park race track in Florida of US$115 million and at The Meadows race track in Pennsylvania of US$77 million.

The project financing will be made available through two separate loans provided by wholly-owned subsidiaries of MID to wholly-owned subsidiaries of MEC that own and/or operate Gulfstream Park and The Meadows. Advances under the loans will be made available by way of progress draw advances to fund reconstruction of the clubhouse/grandstand facility, backstretch and related site works at Gulfstream Park, and reconstruction of the clubhouse/grandstand facility, slot machine facility and related site works at The Meadows.

The Gulfstream loan will provide funding for US$115 million of the US$145 million budgeted cost of the Gulfstream Park reconstruction project. The Meadows loan of US$77 million is expected to provide sufficient funding for the construction costs of The Meadows redevelopment.

The loans have a term of 10 years from the relevant completion dates for the reconstruction projects at Gulfstream Park and The Meadows. The anticipated completion dates for the reconstruction projects at Gulfstream Park and The Meadows are the first and second quarters of 2006, respectively. Prior to the relevant completion dates, amounts outstanding under each loan will bear interest at a floating rate equal to 2.55% per annum above MID's notional cost of borrowing under its floating rate credit facility, compounded monthly. After the relevant completion date, amounts outstanding under each loan will bear interest at a fixed rate of 10.5% per annum, compounded semi-annually. Prior to January 1, 2008, payment of interest will be deferred. Commencing January 1, 2008, MEC will make monthly blended payments of principal and interest based on a 25-year amortization period commencing on the relevant completion date.

The loans contain cross-guarantee, cross-default and cross- collateralization provisions. Each loan will be secured principally by first-ranking security over the lands forming part of the relevant race track operations at Gulfstream Park and The Meadows and certain lands adjacent to the racetrack operations at Gulfstream Park and over all other assets of the relevant borrower, excluding licences and permits. In addition, each borrower will covenant not to pledge any licences or permits held by it and MEC will agree not to pledge the shares of the borrowers. The Meadows redevelopment will require additional financing to fund the cost of other slot related expenditures (slot license and machines, furnishings and equipment) which MEC expects to seek from third party lenders or investors. MID has agreed, subject to entering into a satisfactory intercreditor agreement, to subordinate its security in The Meadows facility to the third party lender up to a maximum amount of US$110 million.

"This project financing represents a very important step in the redevelopment of Gulfstream Park as well as allowing The Meadows to capitalize on the legalization of alternative gaming at Pennsylvania racetracks," said Jim McAlpine, President and Chief Executive Officer of MEC. "We expect that this financing will facilitate the construction of a world-class racing and entertainment facility at Gulfstream Park and a new slot facility at The Meadows".

The first advance of approximately US$22.2 million under the Gulfstream loan is expected to occur on December 9, 2004. A definitive agreement regarding The Meadows project financing is expected to be entered into by February 28, 2005 and will contain certain conditions for the first advance including the issuance of a slot machine gaming license for The Meadows.

The project financing was approved by the MEC Board based on a recommendation from a Special Committee of independent directors of MEC comprised of Messrs. William J. Menear (Chairman), Jerry D. Campbell and Gino Roncelli. The Special Committee engaged RBC Dominion Securities Inc. as independent financial advisors and Stikeman Elliott LLP and Cravath, Swaine & Moore, LLP as independent legal advisors.

MEC intends to file a material change report immediately upon filing of this press release. The material change report is being filed less than 21 days before the date of the closing of the Gulfstream project financing which, in MEC's view, is both reasonable and necessary in the circumstances as the terms of the project financing were settled, and approved by MEC's Special Committee and board of directors, after the close of business on December 8, 2004, and MEC requires immediate funding in order to complete the Gulfstream reconstruction project on schedule for opening prior to the commencement of Gulfstream Park's 2006 race meet and to replenish cash previously expended by MEC on behalf of the Gulfstream borrower on this project.

MEC, North America's number one owner and operator of horse racetracks, based on revenue, acquires, develops and operates horse racetracks and related pari-mutuel wagering operations, including off-track betting facilities. Additionally MEC owns and operates XpresssBet(TM), a national Internet and telephone account wagering system and HorseRacing TV(TM), a 24-hour horse racing television network.

China gaming nod likely
As reported by The Standard

CHINA - Chinese scholars are discussing the sensitive issue of legalising games of chance on the mainland as a way to stem the outflow of an estimated 600 billion yuan (HK$565 billion) annually spent on casinos and horse racing, much of it in Macau and Hong Kong.

Paradoxically, concern over the downside of gambling is also prompting scholars to set up a toll-free nationwide hotline for problem gamblers, a move that underscores official awareness of the depth of interest in games of fortune. Discussion of the problems and possibilities of gambling are both taking place under the aegis of the China Centre for Lottery Studies (CCLS) at Peking University, a government-approved body set up two years ago to bring together scholars from many fields to focus on gambling-related policies and problems.

The centre sponsored China's first international gambling conference last week convened in both Beijing and Macau. CCLS executive director Wang Xuehong said in an interview that her centre is arranging for psychologists to train volunteers to staff a hotline for problem punters because of a string of press stories and letters received at the centre about divorces, suicides and families made homeless due to excessive wagering by addicted gamblers.

Wang estimated that underground casinos in the mainland rake in 10 times more revenue a year than the 40 billion yuan collected from government lotteries.

Also at the conference was Peking University lottery expert Wang Zengxian who was quoted in the official media as saying that each year mainlanders are gambling away nearly 600 billion yuan on overseas casinos and horse racing. He urged authorities to suppress underground gambling and develop a healthy and well-managed lottery industry as a ``catalytic agent'' for national economic growth.

He suggested that the government test a casino operation in some areas before eventually lifting the gambling ban across the country.

Jia Kang, director of the Finance Science Research Institute with the Ministry of Finance, said authorities should explore the relationship between the lottery industry and the country's social and economic development.

Increasingly free to travel, mainlanders are fuelling the boom in the casino industry in Macau and elsewhere. Jia urged the government to explore how to further regulate and promote lottery activity on the mainland.

China first allowed civil affairs ministries at different levels of government to sell ``welfare lottery'' tickets 17 years ago, then seven years later allowed sports ministries to set up ``sports lotteries'' in which people can win prizes by picking the winners of professional football matches.

The two lottery systems are now bitter rivals as ticket proceeds largely stay with the respective ministries and fund much of their budgets.

Despite a series of lottery scandals, Wang Xuehong said education ministries and other government departments also want to set up their own lotteries to generate funds. But Wang expects the next phase of liberalisation to involve horse betting. More than 12 tracks have been set up around the country and a thoroughbred breeding industry has already taken hold. Thinly-disguised wagering has started, but the Beijing Jockey Club recently halted races because of a police investigation.

Legalisation of casinos will take longer because, as with the lotteries, almost every province and city will want to have their own because of the revenue potential, Wang said.

When the Communist Party took over the country in 1949, gambling was to be eliminated as a social vice. Now, like capitalism itself, it is back in full force.

Many poor people, especially migrant workers, often buy lottery tickets or visit illegal casinos.

Better-off players visit Macau's casinos but some also spend more than they can afford.

Wang said China needs a network of treatment centres to offer direct longer-term help to problem gamblers. Beijing is gradually moving forward with liberalisation of betting, seeing it as an acceptable diversion whose prohibition only drives gamblers underground or overseas.

Wang said CCLS intends to develop a gaming management MBA program to assist in the industry's professionalisation.

Las Vegas Sands Corp, which owns Nevada's Venetian Casino Resort and the Sands Macao Casino in Macau, has raised the price of its proposed initial public offering to US$24-$26 (HK$187-$202) per share from US$20-$22 each. The company could raise as much as US$619 million. It said it will likely use proceeds from the IPO to fund development projects, including projects in Macau and the United Kingdom.

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