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Pinnacle Entertainment, Inc. (NYSE:PNK)

Q4 2008 Earnings Call Transcript

March 6, 2009 11:00 am ET

Executives

Chris Plant – IR

Dan Lee – Chairman and CEO

Steve Capp – EVP and CFO

Alain Uboldi – COO

Analysts

Felicia Hendrix – Barclays Capital

Daniel Yu – JPMorgan

David Katz – Oppenheimer

Dennis Forst – KeyBanc

Operator

Good morning. My name is Don and I will be your conference operator today. At this time, I would like to welcome everyone to the Pinnacle fourth quarter 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions) Thank you. Mr. Chris Plant, you may begin your conference.

Chris Plant

Thank you. Good morning, everyone, and welcome to our fourth quarter 2008 earnings conference call. Earlier this morning, we released our fourth quarter and year-to-date 2008 financial results. If you do not have a copy of the announcement and would like one sent to you, please contact us at 702-784-7777 or at investors@pnkmail.com. In a few moments, you will hear from and have an opportunity to ask questions of our Chairman and CEO, Dan Lee; CFO, Steve Capp; and COO, Alain Uboldi.

Now, let me remind you that during the course of this conference call, management may state beliefs and make projections or other forward-looking statements regarding the future events and future financial performance of the company. We wish to caution you that such statements are just projections and expectations and that actual events results or events may differ materially. I refer you to the Safe Harbor statement that is included in today's press release and to our Annual Report on Form 10-K, quarterly reports on Form 10-Q, and our press releases and documents filed with the SEC.

With that said, I will turn the call over to our Chairman and CEO, Dan Lee.

Dan Lee

Good morning, everybody. I have got Alain Uboldi here, who is our Chief Operating Officer, and Luke Courtman [ph] who is in charge of our Construction, and Steve Capp is the Chief Financial Officer. I think Louis [ph] is on the phone from London.

One of the things we have heard from the last few conference calls is that Alain Uboldi is a little difficult to understand on a telephone. So while he is our very competent Chief Operating Officer and a true (inaudible), probably the only person on this phone call born in a country where casino gaming was legal on the day of birth. So I'm going to go through the operating results just because I have less of an accent than Alain. But Alain, please correct me if I miss something.

Obviously the quarter was very good. Somebody must have been waiting for it to dump the stock today I guess, but the quarter itself is good. At any given time in a company like ours, some properties are usually hitting well and some properties are missing a little. I think both in the quarter and the year, we are lucky that the big properties performed well, and where we had weakness were the smaller properties.

And L'Auberge, in particular, we added 250 rooms a year ago. They opened right around New Year's. Some of them were actually open for New Year's. But these things don't click in immediately. It takes a little while to get the occupancy up and to get the quality of the gambler up.

Interestingly enough, our win per occupied room, in other words, the amount of money gambled – and we know this from the frequent player cards – by the people staying in the hotel is actually higher now than it was before we added the 35% addition. You normally would not expect that. You would think, with more guestrooms, you would end up reaching out for a lower quality customer. I think the place has built a more and more loyal following and gotten more buzz with the addition of rooms than it had before, and it is doing quite well. It did $84 million of EBDIT in the year versus $75 million in the prior year, and I think the year before that was about $75 million also – $72 million or $73 million.

Frankly, there were two hurricanes in September that resulted in the place being closed Labor Day weekend, and then there is I think in the third weekend of September we had another hurricane, which is an Asian holiday, which we expected to be a good weekend. And so we estimate that those hurricanes cost us about $5 million. That was off of a little accounting issue with the mychoice card where we had to create an accrual for the points just simply because we told people what their point totals were. That cost about $1 million.

So really, adjusted for hurricanes in the implementation of mychoice, L'Auberge did about $90 million, which is pretty darn good for a place with 1,000 rooms. And I think – and it continues to do well. We have pretty easy comparisons in the first quarter at L'Auberge because last year the hotel had opened and hadn't really kicked in yet. So that is L'Auberge. The economy down there seems to be holding. I'm not sure why the Houston economy is better than the rest of the country, but it seems to be. And I think our property, frankly, it makes more than hotels in Las Vegas three times its size, and that is despite a much higher tax rate.

So far, I have not hard our dear president tell people not to go to Lake Charles, Louisiana. He says you shouldn't go to the Fountain Blue in Miami and you shouldn't go to Las Vegas. I've heard Las Vegas (inaudible) five times, but Lake Charles is perfectly acceptable and it's closer to where people live. So – and we are doing well. And perhaps to some extent, not only Lake Charles but all of our properties are the low-priced alternatives. For many, many decades, Las Vegas was the low-priced alternative. So when you hit a recession, people go to Las Vegas instead of Hawaii, for example. I think today, places like our L'Auberge and our other properties are the low-cost alternative.

In New Orleans, we ended the year almost exactly flat with the previous year with $54.1 million of EBDIT. Our revenues were off a little bit, but our margins were up. We have gotten a little smarter about some of the marketing programs we’ve run. And I think that is an excellent result given what is going on in the economy at our New Orleans property.

Belterra was off some, both in the year and in the quarter. Belterra is competing with two new casinos outside of Indianapolis. If you look at the southern Indiana gaming market, it is actually up over the previous year if you include those two racetracks with 2,000 slot machines each in the numbers. But the racetracks have garnered quite a bit of market share from the rest of us, and as we expected, we are down. This was why we didn't add the other tower to it when they legalized the racetracks. Just not a whole lot we can do about it. We're doing the best we can.

There is some additional competition yet to come. One of those racetracks has been operating in a temporary facility. They go into a permanent facility sometime in the next six – yes, I was going to say (inaudible) and then the Argosy, who is our biggest competitor in the market who is bringing in a new casino later this summer. And we are doing some things renovating our place, different aspects of it we're renovating. We are trying to get some better signage and so on. But it is going to be a challenged year at Belterra and it was this past year.

Bossier City held its own. It is a great little cash cow for us, a nice property. It did $17.1 million of EBDIT, which is off only a little bit from the previous year. And that is despite the opening of some pretty big Indian casinos in southern Oklahoma, which are actually quite a bit closer to Dallas than we are. So I am pretty proud of how our property has done there.

Lumiere Place, boy, if you look back at the transcripts of the conference calls a year ago, we were very consistent saying don't look for a whole lot of income out of Lumiere Place in '08, look for it to produce nice profits in '09. It is the way a place opens. In Lake Charles, we didn’t make any income for seven months. It was very similar in St. Louis. There are – you have to overstaff because the employees don't know their jobs. You have to do inefficient marketing because you don't have a mailing list yet. So you don't know who in that market is really a gambler, so you end up buying television time and paying for a lot of eyeballs who are not even 21 years old. And so you eventually start to understand who to market to and your employees get more efficient at their jobs. Those are our two biggest expense items.

I'm sorry. I forgot to mention that Carlos is sitting here earlier – he is in my right. So – but the marketing and payroll, which are our two biggest expense items, shrink relative to our revenues. Lumiere Place has become profitable. It did $10 million for the year. In fact, Chris, you may remember this. That is probably actually more than L'Auberge did in its first year –

Chris Plant

(inaudible).

Dan Lee

I will tell you it has kicked in the last few months. Of course, the loss limit legislation helped, but frankly we were already profitable before that and improving sharply. So it is hard to gauge how much it has helped, but it clearly hasn't hurt.

Chris Plant

They were getting (inaudible).

Dan Lee

We are paying a higher tax rate. I think, clearly, we are generating quite a bit more money for schools in Missouri, and I think it has helped us compete with the casinos across the way in Illinois. But it was headed towards profitability and it is pretty profitable now. And you will notice, in the fourth quarter, Lumiere Place had $6.3 million of EBDIT and it only did $10 million in the year. So 63% of the income came in the fourth quarter, which is not a seasonally strong quarter. So, it portends well for going into this year, and in fact, January in February have both been pretty good months there.

We broke out the Admiral. Previously, we kind of had the numbers in the prose, but we thought it added disclosure for people to understand. The Admiral really is a separate riverboat casino that is three blocks down the hill from (inaudible). Obviously, the competition from Lumiere Place has hurt the Admiral quite a bit. We knew it would. When we bought the Admiral, in part it was to try to get their mailing list and so on and then to figure out what to do with it.

And we have indicated that we hope to work with the city and the Gaming Commission on the possibility of moving the Admiral to a different location. In fact, we have an option on a piece of land to move it to. Awful lot of work ahead of us to do that. Don't know that it's going to happen right away. Don't know if it will ever happen, frankly, because we do need Gaming Commission approval and we may or may not get it.

There is not a lot of capital around these days. They have made some noise that the only way you can move it is if you make a really large investment. Neither of us or anybody else is in a position to make a really large investment. So in the meantime, it operates where it is. We have scaled it back rather dramatically to try to reduce the losses of EBDIT. And we have reduced the hours of operation. We have reduced the hours that table games work. We’ve closed the foodservice on it. I think the heat is still on. And so the objective there is to minimize the losses while we seek to move it. And in fact, the loss run rate today is a lot less than the $1.6 million you saw in the fourth quarter. And –

Alain Uboldi

(inaudible) to breakeven.

Dan Lee

Okay. You're not going to break even for the year. You will probably have a loss for the year, but it won’t be much. And so, that is the Admiral. And frankly we would like to get the loss down to a small enough number that you just continue to operate it. If it takes the Gaming Commission years to give us permission to move it, for us to find the right place, we will just sustain the losses for as long as we have to. If you can show a little income, that would be great too, Alain. So that is the Admiral.

Boomtown Reno did not have a good year, lost $4.4 million of EBDIT versus a profit in the prior year of $3.5 billion. We were very disappointed that Dallas [ph] store didn't do more for us, which obviously didn't help us, and that swing factor is a pretty big swing. We have renovated about half of the guest rooms at the property and we do hope to do better this year and eventually return to profitability.

Now, obviously, if you were to try to sell Boomtown Reno, it would sell for a multiple of EBDIT. And EBDIT is zero, so you wouldn't sell it for much. The real value is the land. It is 500 acres of land there, and we do expect it to be profitable at some point. We are not going to sustain losses forever, and so it will be profitable or it will become Nevada Landing, which if you go out to Jean, Nevada, you will find out Nevada Landing is now a concrete pad, which pains me because I remember when it opened, to again give some clue to my age. But we think it will be profitable. We're working towards that, and we hope to get there.

But if you're trying to value the company, you have got to remember that in our EBDIT numbers there is a loss of $4.4 million that we could end that loss. So you almost have to go asset-by-asset and say, some assets are worth whatever it is, six times EBDIT, eight times EBDIT. Reno is not worth six or eight times EBDIT. Reno is worth some price per acre for a number of acres. And if you just put a multiple on our overall EBDIT, then Reno is distorting your number a little bit because it pulls down the overall EBDIT.

In Argentina, $11.8 million of EBDIT versus a $14.4 million, the fourth quarter off some as well. We had a challenge all year where we had a smoking ban and our principal competitor, which is just a couple of miles down the road in another province, did not have a smoking ban. They now have a smoking ban. It came in in the fourth quarter, which hopefully will help us have a better year.

Argentina is not having the best economic circumstances. The turmoil we have in the US is similar to what Argentina goes through about every five years in its history. But it is pretty disruptive down there now. And so I think we'd do well to have a flat year this year. I think we have a shot at that. So I don't think we're going to continue to go down 20% a year, but I think the fact that our competitor now has a smoking ban is probably offset by a weaker economy than we had in the past year.

Corporate expenses. We have, I think, done a pretty good job of trying to hold the line on corporate expenses. And despite the growth of the company, it was actually little bit below the prior year. And we will continue to do that. I think it is appropriate in these times.

Now, let me change hats a little bit. Two careers ago, I actually taught accounting at Cornell, so excuse me if I sound a little professorial on this. But the accounting gets to be a little bit funny sometimes and we all deal with it. We have to. It’s the language by which we try to communicate. It is one of the languages that we communicate how the company is doing and so on. And it is a little bit like masses used to be held in Latin.

One of my favorite phrases is GAAP, Generally Accepted Accounting Principles. It is a misnomer. They are not really generally accepted. It is 25 stuffed shirts in Stamford, Connecticut sit down and determine what generally accepted accounting principles are. It is a lot like France at one time decreed that the language of England should be French. The English never really caught onto that, and about the only vestige of that is the way we spell the word one, which is spelled as if it were on [ph].

But here is generally accepted accounting – the best example I can give of that is EBDIT is not GAAP. So we are not supposed to use it if we can avoid it. And if we do use it, we have to reconcile it to operating income. Every analyst report I've seen for at least ten years refers to EBDIT. Every bank agreement in the industry refers to EBDIT. If anything is generally accepted, it is EBDIT. But the stuffed shirts in Stamford, Connecticut haven’t figured that out yet. So it is not generally accepted, but accountants like to call it generally accepted because it gives them this veneer of something.

Well, they have a new phrase now these days called fair value. When you first see fair value, you think that might be fair market value. It isn't fair market value. Fair value is very different than fair market value. Fair value is the value of something determined and going into the accounting literature. So guys sit down in a back room and come up with these formulas that you're supposed use to calculate fair value.

And in effect, accounting these days, you are supposed to carry every asset at the lesser of fair value or book value. You don't get to write things up. But if fair value is less than book value, then you have to impair it, which is the new word for write it down. So you go through this. And some of the formulas get a little bit silly. But for example, if you are looking at impairing an operating asset, if you're trying to figure out the fair value of an operating asset, you forecast operating income as far as the eye can see and then you sum it up. You just add it. And that gets you fair value.

Now, fair market value would really be the discounted cash flow of what you expect that asset to earn. That’s what, if somebody were buying it, they'd say let's forecast the cash flow, not the operating income, and use the discount rate and discount it back and you will get what somebody would pay for it, which would be what fair market value would be. And if you use a multiple of EBDIT, it is kind of a sledgehammer way of getting to the same number. I think it is used all the time. But that just gives an example of how fair value is actually computed quite differently than fair market value.

Now, on your non-operating assets, things fall into one of three categories. There's category one, category two, category three. Category one is where there is a very similar asset that has a ready market course that is kind of easy to value. So, for example, the 1.2 million shares of Ameristar that we own, Ameristar trades on the New York Stock Exchange. We can look it up on our telephones and see what it is trading at. And that must give a pretty good idea of what that stock is worth. So if it's a category one asset, it is pretty easy to figure it if it is impaired. And if it goes up, you don't get to write it up, but if it is down, you must impair it. If it has been down enough, long enough, which is always a mystery to me, it is kind of subjective whether it has been down long enough or sufficiently enough – but we tend to be a little bit conservative in that subjective analysis in saying, if it is down, let's write it down.

And so, we have done that generally when we could. Sometimes the accountants have kind of said, well, we don't think it has been down enough, long enough. And we were like, well, okay. But we did write down our Ameristar stock quite a bit, both in the year and the quarter. I think we are down to $8.64, and it is now trading a bit above that. So that’s where that is. They are a fine company. We still hold the stock although we bought it with the idea of putting the two companies together. In these credit markets, that just doesn't make sense for our shareholders anymore. So at some point, we will probably sell that stock.

The category two assets, I don't think we have very many of those, but that would be like if you owned a bond in a company and that bond didn't trade but there was a similar bond that did trade; you could kind of infer what your bond was worth and get a pretty good estimate. The category three assets, we do have a bunch of. That’s development land, gaming licenses, goodwill and so on. The math on that is really pretty wild.

You take that development land, for example, and you kind of guesstimate what you could build on it. You guesstimate what it would cost to build it. You forecast what it would earn. You pick a discount rate. You discount back the cash flows in this case to get kind of an estimated fair market value of what this thing would be worth if you built it. And the difference between what it would be worth and what you estimate it would cost to build is the value of the land. And there is obviously a lot of guesstimating in there and picking of numbers and so on. If you pick a little different discount rate or a little different construction cost or so on, it will get you quite a different number.

And one of the things that happens is when the gaming stocks as a group go down, it means that casinos are not worth as much, or put another way, the discount rate is higher. You would use a much bigger discount rate than you would two years ago. So when you go through that math, it is pretty logical actually. It’s achieved the value of all casino companies has fallen. Just look at the stocks; they're all down a lot. We are down less than most and we are down a lot. So if you see that casino stocks have fallen a lot, therefore, the value of development sites must have fallen a lot. And in effect, the math does that and you get a fair value that is below the book value. And so then you impair that.

So we diligently went through the balance sheet, as we are required to do in the fourth quarter, and looked at every one of these assets and put it through the fair value calculation and came up with a rather significant write-off across the different assets, all of which is disclosed in the press release. And then on top of that, we concluded that under the accounting rules because we haven’t had income before taxes in the last three years that our provision for tax credits is impaired, so we had to swing the provision for taxes the other way. It has augmented in effect the losses. Hope I said that write. We produced lots of cash flow, but we don't have a lot of taxable income because we get large depreciation charges on the buildings that we built that are newly built.

Now, frankly, all of these impairment charges and everything has no impact on the company. Whatever the company was worth the day before we took the write-offs, it's worth the day after we took the write-offs. Nobody looks at what our land – if we were going to sell our land in Atlantic City, nobody is going to look at the book value to figure out what they might pay for it, okay, or our land in Reno or our land in Baton Rouge or our different development entities and so on. And so it has really no impact on the company.

In fact, I think the stock price has adjusted for this a year ago. I think the accountants on this are a lagging indicator, not a leading indicator. They are actually looking at a company, in our case, where the market value of our equity has declined by $1 billion. And they say, oh, my God, this development site must not be worth what they're on books for, so we wrote them down. And so, they are actually kind of responding to the decline in the market indirectly. It is when you go through the math, that’s the way it works out. And so the write-offs are really a function of the share price declines.

By the way, it has no impact on our actual income taxes. If we – the IRS won't let you take these write-downs until you actually sell something. If we sold something for less than we paid for it, we would get a tax loss. But our taxes – we're pretty well sheltered from taxes by our depreciation charges. For example, the expansion in Lake Charles, under the Hurricane Relief Act, we got to depreciate that entire expansion by 50% in the year it was put in service. That shelters a heck of a lot in income taxes.

If we were a current tax payer, we might have a greater incentive to sell something and create a tax loss. But at the moment, we're okay. We don't have any taxes to pay and so the write-downs really have no impact whatsoever on our taxes. It has very little impact on our future income because most of the write-offs are related to land, and land doesn't depreciate anyway. So, if there was a building that got ripped down, then I guess you would have a smaller depreciation charge going forward, but most of this related to raw land.

And then, frankly, no impact on our business unlike a bank. And you can kind of get a glimmer of some of the problems that Citibank is probably going through from this. But our customers don't know and don't care who owns the slot machine. I mean, our casinos don't even have the name Pinnacle on top of it, let alone do they sit here and listen to the earnings call and say oh, my God, they had big write-offs, maybe the slot machine won't pay out. And so it has no impact on our actual business. And regulators – our regulators are sophisticated. They understand this. And so I am not worried at all that the regulators will rise up and say, oh my God, you had a $300 million impairment charge. It is a non-cash nothing charge, doesn't mean anything.

The only person that really cares is my mom cares. She is going to read it in the newspaper and see this $300 million stuff and I'm going to end up explaining to her that we are actually okay. And I guess our employees care because they read it in the newspaper and they get nervous. We have to explain to them this is a non-cash charge just required by the stuffed shirts of Stamford, Connecticut and it does not affect us, and please go back and take care of the customers and they will take care of the business and everything will be fine. But I guess my mom is a good reason to do a very thorough evaluation as we did, so we don't have to do this every quarter. I love my mom, but I don't want to have to repeat this discussion every quarter.

One way, if you step back and look and you say, if all of the assets are carried at the lower of cost or fair value, then I guess almost by definition, stocks should trade above book value. If you think of – if they were a hypothetical company that had only two assets and no debt, and the cost of one asset was $100 and it had a market value of $50 and the other one had a cost of $50 and a market value of $100, accountants would say the book value of that company is $100, the lower cost to market, $50 on each. And the real number by definition would be $150. The market value of the two different assets (inaudible) would be $150.

And so the way accounting has evolved or is evolving, companies kind of should trade at premiums to book value. If you do the math, I think their book value after all of these write-offs and everything is about $12 a share. That’s twice our share price. We tried really hard to figure out how to write the assets down to get our book value below fair value and couldn't do it.

And in effect, the whole reason why we filed our 10-K a bit late and why this call is a bit late was a lot of math, a lot of different assumptions back and forth. We had hired E&Y to go through all of the assets to give us a third-party evaluation of what the correct fair value was. And then Deloitte & Touche as our normal auditor came in and looked that over, and there was a lot of discussion on the different assumptions and what projection and how does this tie to this and this tie to that. And we kind of came to a consensus, which is what you see in the press release. That is the only reason we were late. Everything in our business is fine. We actually knew what the operating results were weeks ago. But the end result is we are at a book value of about $12 a share and the underlying business is fine.

I should shut up and let Steve talk about liquidity.

Steve Capp

Do you want to talk about development (inaudible) I will give you a break here. Good morning, everyone. I have got a bunch of stuff that’s less interesting, so I will keep it shorter. Somebody can ring the bell, we had $1 billion in revenue, so we are officially a $1 billion company I guess. Who would have thunk it in the context of this economic environment, but –

Dan Lee

I would feel better if it were market cap.

Steve Capp

Exactly. So that’s great and reflected obviously in the bottom line as well as Dan just went through. Just looking at a couple of items on the income statement coming down a bit – pre-opening development in the quarter off quite a bit. That's because a year ago quarter, we opened Lumiere Place, at least the initial part of it, the casino. And L'Auberge du Lac, on an annual basis, it is off somewhat reflecting that same – those same facts and the fact that we just – we are building the St. Louis County right now but had nothing to open in Q4 on a comparable basis. By the way, those are detailed in a schedule, second page from the back of the press release.

Depreciation and amort is up on an annual basis about $38 million. $30 million of that is related to the Lumiere Place complex in total, including the Four Seasons Hotel, Hotel Lumiere and of course the casino itself, and then about $6 million of that is L'Auberge. That is $36 million of the $38 million approximately. No surprises there.

The impairment charges have broken out. Dan just went through the background rationale on that in a pretty helpful manner. We've given a fair amount of detail on these things. As Dan mentioned, it is all non-cash. The numbers are big, but it does not affect operations, does not affect liquidity. And as he pointed out, I think, importantly, it does not affect our income tax return. This is a – what you see down here in this $35 million tax provision is the net result of a – that is the non-cash book provision for – non-cash book expense for our tax provision for the quarter or the year, and it does not impact our tax return. We are not currently a cash taxpayer and haven't been for a while.

And we do have NOLs that protect some profitability going forward. Those have diminished quite a bit, but we are actually in a very good overall income tax return position for the reasons Dan mentioned. We have got an interest coverage shield – interest expense shield, excuse me, a depreciation shield, and even some go-zone credit shields as well from our development activity in the Gulf region and the like. So there is a lot going on with these large impairment numbers, but we've tried to break those out and present those clearly.

One of them on taxes, by the way, the tax number you see – I won't talk about the quarterly tax number because that is even more volatile, but on an annual basis – and I'll just give you a quick summary of kind of how it worked for the year. If you took a statutory corporate tax rate for us of 35% and added kind of a combined state statutory rate of about almost 4%, a little less than that, you are at about 39% combined statutory tax rate.

And then in summary, where we ended up was due to lobbying costs and other non-deductible items that are creating permanent timing differences, the cost is about 3 points in that rate and then the change in the valuation allowance, which we do talk about in the press release a bit, largely due to Dan's mentioning we have had three years of operating losses from continuing ops. That triggers a different valuation methodology and certain assumptions for those valuation methodologies.

And so we effectively took a very large valuation allowance against our deferred tax assets. That valuation allowance ended up costing us about 23 points in effective tax rates. So the 39% statutory rate, if you will, pulled away the 3% for non-deductible items at 23% valuation allowance. You are at the 13% that is the annual effective tax rate on the income statement. And you can imagine there is a bit of work behind those quick summary numbers, but that is how you get there. And of course, greatly – shows a greatly reduced tax benefit from a lot of this activity, but it does not affect the tax return.

Let's see, discontinued operations. We had about $87 million of insurance proceeds in 2008, which is pretty nifty. That is all in disc. ops because Biloxi is there. Our insurance process is not over. Dan will probably touch on that. But we did receive $87 million in cash, pretax cash offset by our really non-cash write-downs at the Bahamas, which are also in disc. ops. That resulted in about $80 million of net pretax disc. op. income. You can actually apply about a 40% statutory tax rate to that, and that gives you the one minus T result of about $48 million in disc. ops there for the year.

Dan Lee

Although we won't actually pay taxes on most of it.

Steve Capp

That is right. That's right. And the reason for that is a lot of that – most of that, the cash from the insurance companies, is related to a return of capital rather than – capital investment rather than profits. A portion of it is business interruption; most of it is a return of CapEx.

Dan Lee

But even the business interruption portion is probably sheltered by our other tax losses.

Steve Capp

Yes, yes. Interest expense cash for the quarter, year-over-year $20 million versus $18 million, as mentioned in the release. And then cash – and actually net of all debt amort [ph] also for the year, $73 million for the year versus $63 million prior year. This year we had a full year of 7.5% bonds out. We had about half year of that in the prior year. But we are obviously – as we have opened two properties in late '07 and building River City, our interest expense is up. By the way, our borrowing rate at LIBOR plus 2 for the quarter was about 2.43%, something like that. Our old credit agreement is yielding some pretty nifty benefits right now on a marginal cost of debt.

CapEx, very quickly, we had – maybe just the annual CapEx is probably what is important. Our total CapEx for the year was $306 million. The highlights for that – the highlight reel there is, about $84 million of that was related to the St. Louis complex opened late '07 and into '08 and about $23 million of that at L'Auberge as that opened in late '07 and some of that came into '08. We did spend approximately $52 million at River City in the full year, about $11 million at Sugarcane Bay doing various things on site prep and the like, and about $99 million in AC for various things, mostly land, more detail in the 10-K, but about $300 million for the year. The annual number, by the way, was $30 million and – $25 million of that was St. Louis County, so the vast majority attributable to CIP there.

And then let's see. Balance sheet, very quickly, $116 million of cash, as you can see. We use about – technically use about $70 million of that in consolidated or global operations. But if you set aside Argentina and some cash we had lying around at corporate for day-to-day needs, we actually only have about 55 deployed at our domestic operating properties today.

Chris Plant and the cash team have done quite a great job. Our finance directors around the properties and our controllers have done a great job helping us diminish cash in the system, operating cash in the system. And that is just a net source of funds for us, which we have used to offset what would otherwise be borrowings under the revolver. And so we are down to about $55 million on seven operating properties domestically now. We are pleased with that although still working on that.

As you could see, $152 million drawn on the revolver at year-end, about $12.5 million of letters of credit outstanding. We did have invested, with much more detail in 10-K, but we were about $126 million into River City construction at the end of the year. I will let you do the math on what that means for liquidity, but with Dan's comments and the obvious performance at Lumiere Place and the other properties, particularly in Louisiana, our free cash flow generation is significant. Our liquidity under the revolver is significant. And we look forward at our liquidity prospects with some measure of confidence, and we feel quite good about where we are.

A couple of other things. I know there is – a quick comment on the 10-K. We are basically done with that. The reason for the delay is, as we mentioned in our 12b-25 filing earlier this week was, the number of – the number of magnitude of the impairments we realized this last quarter took a lot of scrutiny, frankly. And we learned some things along the way, and we wanted to make sure we got it right. We hoped that those on the call here and in the broader market aren't too disturbed by a late 10-K filing, but we wanted to take the time to get it right.

We feel very good about what these numbers are according to GAAP. And having gone through a fairly exhaustive process with our auditors and our E&Y consultants, we are in the right place, but it took a little extra time to get there. It is a big number for us and we needed to get it done right. But I think we will be filing that thing either today after the close. It will probably have a Monday date stamp on it or some time on Monday. But we are basically finished and it is ready to go, and that was the reason for the delay.

Dan Lee

There is no real reason. I mean, there is – when you say you're going to file something after the close, people jump to the conclusion that there is some (inaudible) and think there is something that I would consider significant that we haven't discussed on the call.

Steve Capp

Yes, absolutely.

Dan Lee

If we get all of the sign-up, maybe [ph] before the close, we'll just file it.

Steve Capp

Agreed. Just a comment about the bank deal, I know there is some – maybe overall capital structure, I know there is some angst out there. Liquidity and capital structure seem to be the highlights for most corporates these days, almost over and above operating results. I don't know why else our stock is trading off these days.

Look, I would tell you that fundamentally I think we have got an excellent balance sheet. For those of you who pay attention to these things, we have a very traditional capital structure. Dan and I and the rest of the team here have been focused over the years and insistent upon a very traditional capital structure. That is to say a bottom-heavy capital structure. We have got about $750 million or so of sub debt in the cap structure. We have done, I don't know, several equity offerings, including about $385 million of net proceeds in January of '07.

That is all on the bottom of the cap structure. That means, by definition, that the top of the capital structure it is much lighter. And we have done that quite intentionally just in case of market conditions like this. And so, as we have $152 million of drawn revolver at the end of the year and $159 million of cash flow for the year, we are about 0.91 times senior secured debt leverage. We don't even have any senior unsecured debt. We have got senior secured at the top of the capital structure and we have got a ton of junior capital below it.

That is pretty important because if there is any market that is accessible in the gaming industry today, it is the bank or the senior secured market. And I'm not saying that that’s necessarily the case, but traditionally that is the one that first becomes available and is available to a company. And we not only have very low senior secured leverage today, as you all have your own models of us, you know that that stays very low even through construction of River City.

And as our 10-K will disclose and we have mentioned before, we keep a close eye on covenants. There is probably some work we want to do on our bank deal vis-à-vis covenants a few quarters out as we are building River City. That is not because we are increasing our net leverage even as we are building River City. That is because the covenants in the bank deal anticipated completion of River City sooner than it is actually going to be completed. These kinds of changes to a bank deal are traditional and relatively straightforward, historically speaking. They are not so easy in this market, but they are a lot easier for a company with a capital structure like ours, where a bank can look at us and kind of say, gee, what is my risk of loss on this company under the worst circumstances? That risk in our case, we believe, is very, very low. And that is a real advantage as you are talking to senior secured lenders about things like that.

So, look, there are things we want to do with our capital structure. The market is not real robust right now, but we are in a very good position to get done what we need to get done.

Dan, I will hand it to you.

Dan Lee

Let me expand a little bit on something that Steve mentioned. As it says in the 10-K, we believe we have the funds available to finish River City. And it will come from internally generated cash flow and from room that we have to borrow under our credit facility. Obviously, forecasting ahead the cash flow in this world environment is not an easy thing. So far, we have held up well in the recessionary environment. Will we meet our internal forecast? We hope so. So far this year, we are doing that. But of course, that could change.

On the bank facility, the ability to borrow under that is contingent on remaining inside the covenants. So, we look very carefully at the covenants. The one covenant issue that has our most attention because on most of our covenants we know we are close to the ratios. But there is a covenant of total committed indebtedness and it’s measured compared to trailing 12 months EBDIT. And that one is scheduled to tighten because River City was supposed to be open by now, frankly.

And so we anticipated when we did this bank line several years ago that we would be starting to get the cash flow from River City, and therefore that ratio would come down so the banks basically look at what our projection is and then they set the covenant to be something a little wider than the projection. So we are scheduled to get down to, I think, five times in 2010 that our total indebtedness cannot be more than five times our trailing EBDIT. Now, five for that ratio is a very low number. I think Wynn is at 8.25. I think Harrah's is at 10 or 11, and of course they are in default. But there is – five is exceedingly low. It is what it is because we thought that River City would be open. The fact that River City is opening later than we thought means that we might bump into that covenant sometime in 2010.

So what Steve was alluding to is we will probably go back to the banks and say, look, let us keep this at six for a couple of these quarters. In fact, the last thing I looked at, there was one quarter where we might trip the five and it is not certain that we will. And if we do, it is a year away. So we are kind of looking at it and saying, okay, let's resolve the issue before it’s an issue. And it has been a little bit of a hurdle because the banks are so distracted by the bigger players that are out there in the industry. It's like trying to get the fire chief to the come over and inspect the sprinkler system when he's got three live fires going on. So it is kind of hard to get people's attention. But we are looking out as far as we can see and trying to resolve any issues before they become issues. And even this issue is probably post-opening of River City before it really becomes an issue. So it doesn't stop us from getting River City opened.

The other thing that we look at is our sub debt. It has maturities in 2012, 2013 and 2015, but the bank deal does mature at year-end 2010. So we will have to refinance that at some point. But those are the issues there. I think, under any circumstances, we are in pretty good shape – not any circumstance, but we're in pretty good shape to see River City through to completion. We don't have the type of problems that some of our competitors have on bigger projects. River City will get done.

Now, in Louisiana, we want to go ahead on Sugarcane Bay and then in sequence Baton Rouge. But in today's world, it’s very, very expensive to find that capital. We're probably more capable of raising capital than just about anybody else in our industry with the exception of perhaps Penn, who tried to go up higher but didn’t get the deal done, so now they have a lot of liquidity. But we have one of the best balance sheets in the whole industry and yet our bonds trade at a 15% yield. So if we tried to raise new money, we would be north of 15%. The projects don’t make economic sense if you have to borrow money at 15%.

I think, at some point, the markets will normalize. And when they do, because we have so little senior debt, because we have a good track record, because our operations are holding together, we will probably have access to capital quicker and on better terms than almost any of our competitors. And so we've been very straightforward with the Louisiana Gaming Control Board in saying, listen, we want to go ahead on Sugarcane Bay and Baton Rouge as soon as we can get the money for it, and we will keep you posted as to what is going on in the markets. In the meantime, we are continuing to work on the working drawings and the specifications on both properties, not a large – a huge amount of money but it is millions of dollars that we are spending so that we are shovel-ready when the markets do recover, assuming they do at some point. So that is the two projects in Louisiana.

Atlantic City is different. For one thing, it would have been a much larger project, as Steve alluded to the fact that we bought additional land during '08 in Atlantic City. That was early in the year. Obviously, if we had known the world was going to fall apart, we wouldn’t have. But also, even apart from the financial markets, we were pretty straight up for a long time that we thought Bader Field was a deal stopper.

If the city moved to put casinos at Bader Field, we would not go ahead on the Boardwalk. We couldn’t have been more straightforward on that. They went and issued a request for proposals to put a casino on Bader Field – one or more casinos on Bader Field. In my view, that cuts off the traffic to the Boardwalk and would make any place built on the Boardwalk unsuccessful. They have now extended the deadline because nobody put in a response to the request for proposals. But as long as they are mucking around with Bader Field, you would be insane to build on the Boardwalk.

Now, the financial market is being what it is. We can't build on the Boardwalk anyway. To go build something big on the Boardwalk – I should mention in the meantime, Pennsylvania, Maryland, the Catskills now are all coming on as competitors for Atlantic City. So, obviously with 20/20 hindsight, I wish we had not bought the land in Atlantic City. But at the time we did buy the land, we issued equity at $32 a share of approximately the same amount that we invested in the land. So it is hard to know what our basis is in the land. Is it $400 million? It is the fair value, which is now somewhere around $200 million.

That's actually a good example. I have no idea what this land is worth. I mean, I don't know how you’d know. No other land has traded hands. Nobody – if we had an auction on the site, I'm not sure anybody would show up. The city had an auction for Bader Field, nobody showed up, right? But anyway, the accounting fair value is $200 million on the land at the moment. But as a practical matter, to build what we had hoped to build in Atlantic City takes an era of dreaming. You had to be able to look at it, say, let's build this huge, spectacular place, spend a couple of billion dollars and it will be neat and it was going to have seal tanks; it was going to have a dozen restaurants and all of this stuff. And it takes an environment where kind of greed is good and we should all have a good time, we should all feel good about life. And we seem to be the transposed into Scandinavia these days where we have to hide our wealth and drive old cars and take care of the four and have great healthcare and flashy money isn't a good thing.

So I think we're kind of in an environment where it is just not possible to go and build the type of place that we were hoping to build in Atlantic City. And so we are completing some of the demolition. There are a couple of buildings on the site that we are still scraping down. We will collect the rent from the little stands along the Boardwalk and get a little money out of it. Our ongoing costs are basically going to be the real estate taxes and there is one building that has a lease that goes another four years or so. So all told, it will be roughly $2 million to $2.5 million a quarter, which frankly our company is big enough to sustain that indefinitely. And someday hopefully it’s a better world or somebody shows up and offers us a good price. Okay.

And so, I looked at Chris Plant and he held up four fingers, whatever that meant – $400 million. Great. So anyway, on that, we are happy to take questions. I'm sorry I had to talk so long.

Steve Capp

Do you want to talk about the River City status?

Dan Lee

I like to talk about River City. Going forward, River City should be open roughly a year from now. And it looks great, by the way. It's coming along. You can see it on the website. It has actually reached the point where you can walk through the inside of it and feel the spaces and start to come together. The road, we didn't get it paved all the way in before it got cold. As soon as it gets warm, we will put the asphalt down and then we will be able to open that road which will improve traffic in the neighborhood. And so the entrance road and bridges in it are all coming along pretty nicely. Guaranteed maximum appraised contract with Yates/Paric and we're in good shape.

We did adjust the budget – I should address this. We adjusted the budget slightly because of the capitalization of interest. With Carlos coming in, went through the budget in great detail and came up with the fact that when we had originally put together the budget, we thought we would be open by now. And so the fact that we took longer to go get a guaranteed maximum price and so on resulted in more capitalized interest. It doesn't have any impact on our liquidity. It is kind of right pocket to left pocket. Do you capitalize the interest or not? And when you look at liquidity, you look at the actual cash interest expense repaid, not what the book interest is. So it really has no impact on us. But to do the accounting proper, we said, well, if you adjust capitalized interest to the number it probably ought to be, the budget would be $380 million, not $375 million.

And I also should mention on Sugarcane Bay, for quite some time we have been looking at the operations of L'Auberge. We use the ballroom at L'Auberge for entertainment. It takes a day to set it up because you have to bring in risers and chairs and everything else and then you can put 1,300 to 1,500 people in there. And it takes a day to dismantle it. So if you have an entertainer in town on a Friday or Saturday as we do on two or three weekends a month, that means you can't use the ballroom for anything else, which impedes us on doing convention business on any Thursday, Friday, Sunday and so on.

And frankly, if we had a bigger entertainment venue, we can be more efficient with the entertainers. Jay Leno charges you the same whether you have 1,000 people in the audience or 3,000 people in the audience. So we have been looking at trying to do that. And we decided the right thing to do is to build kind of a large, all-purpose venue, which is a concrete floor and the type of bleachers that pull out that make theater seating when you pull them out. If you want to have a car show, you push the bleachers back and you have a car show. We would place this between L'Auberge and Sugarcane Bay. It is about $50 million to build this complex. Frankly, L'Auberge could use it even if you never built Sugarcane Bay, but we fully intend to build Sugarcane Bay. It helps us figure out how we're going to fill the rooms at Sugarcane Bay on top of this and it really makes it a stronger project.

Now, in today's world, the cost of raising $350 million is too high, which is why we're not underway on Sugarcane Bay, and we will be as soon as we can. We looked at it and said, you know what, we all feel more comfortable building Sugarcane Bay with the convention center. It is a stronger business than building it without the convention center. And if you could raise $350 million, you could probably raise $400 million. So we just decided to make the switch and let's call it a $400 million project and include the convention facility in there. I think technically it's $407 million. Is that right? Is that $407 million? And we don't today have money for either one, but we have the intent to build the bigger one. And so that’s where we are.

Okay. Happy to take any questions.

Question-and-Answer Session

Operator

(Operator instructions) And your first question comes from the line of Felicia Hendrix with Barclays Capital.

Felicia Hendrix – Barclays Capital

Hi, guys.

Dan Lee

Hi, Felicia.

Felicia Hendrix – Barclays Capital

Dan, you took the cake on this one.

Dan Lee

What do you mean?

Felicia Hendrix – Barclays Capital

(inaudible).

Dan Lee

You mean because we are up and our competitors are down? Isn't that the way it's supposed to work?

Felicia Hendrix – Barclays Capital

No, an hour.

Dan Lee

Oh, okay, an hour, sorry.

Steve Capp

It's a pretty big quarter, Felicia, a lot of activity.

Felicia Hendrix – Barclays Capital

Clearly, clearly. I just want to get back to some of your operating results. Just at L'Auberge, clearly the results are impressive and we can see the revenues kind of trending in January, that those are strong also. But just as I look at the margins in the quarter, there were the highest the property has ever generated. So I'm wondering how you are thinking about that going forward.

Dan Lee

L'Auberge?

Felicia Hendrix – Barclays Capital

Yes.

Dan Lee

Well, the additional rooms are a pretty profitable business. I mean, margins are held down by food and beverage, golf, and stuff like that.

Alain Uboldi

It is still improving. The margin is still improving as we go along. If you look at L'Auberge when they opened, it took time for such a big property to get the right margin. But I think we are moving somewhat higher and we always say, because of all what is around L'Auberge, the golf, the spa, all the rest of them, the margin should be around, in GGR, 28%. And we're coming close to that.

Felicia Hendrix – Barclays Capital

Okay, that’s exactly what I was looking – okay. And just on Belterra, do you guys have to kind of just really wait to write out all of the new competition and let that anniversary? I know you talked about some topline stuff that you can do, but is there a way you can squeeze better profitability out of that just in this competitive time period?

Dan Lee

Really [ph] big trucks and drag closer to Cincinnati? I mean, we are going to renovate parts of the casino. I think we are the pre-eminent high-end weekend getaway price and we want to make sure we hold that position. The Argosy boat is going to be large in one level, but they are still going to have their convoluted parking garages and their kind of strange little hotel that is quite a bit removed from the boat. So we have a good concentration of activity. The Tom Fazio golf course is connected right to the property and everything. So we want to make sure we stay in that niche that we are in, and part of that is to make sure we maintain the quality of the facility.

But we are in a tide that is going out. So, I don't think we go back to $40 million in EBDIT anytime soon. And because of the state legalizing additional slot machines and also Kentucky and Ohio, we're always talking about it, and almost every year they both talk about it. We're just pretty hesitant to invest large sums of money in Belterra. So, it is what it is.

Felicia Hendrix – Barclays Capital

Yes, that clearly makes sense. And then just – you might have talked about this, but what is a good cap interest number to use for '09, and if you can help us with the first quarter that would be good too?

Dan Lee

Well, construction in progress –

Steve Capp

You know, CIP is $125 million, Felicia. That is going to be increasing (inaudible) –

Dan Lee

Felicia, why don’t we – Carlos will get you a number off of our model. We don't have it right here. But it’s – we can get it and e-mail it you.

Steve Capp

You know, Felicia, there is $125 million done at the end of the year. There's probably about $40-ish million that would actually be borrowed and spent in 2010 on the tail end. And the delta is in between '09 on a bit of a back-ended basis.

Dan Lee

You use a 8% interest rate then? 7.5% (inaudible) –

Steve Capp

7.5% probably there, Felicia, on those kind of numbers. More back ended to Q3, Q4 than upfront, but accounting for the fact that you are deriving through the $125 million already invested. Or we can talk later.

Operator

And your next question comes from the line of Daniel Yu with JPMorgan.

Dan Lee

Hello, Daniel.

Daniel Yu – JPMorgan

Hi, how are you guys doing?

Dan Lee

Fine, thanks.

Daniel Yu – JPMorgan

Just a few questions here. The first sort of has to go back to L'Auberge. Obviously, you had very solid results there. And if you sort of take your latest quarter, it implies sort of a $100 million run rate in EBITDA. I guess the question I have is a little bit more – if you look out, how sort of sustainable do you think the results are between your sort of earlier-stated margin improvements, the region and obviously the overall macroeconomic backdrop? I mean, do you think that $100 million in EBITDA is sort of achievable?

Dan Lee

Well, it's certainly achievable. I'm not sure I would use it in a model. I mean, in the wild world we are in, you would probably want to be a little bit conservative. The price of oil was pretty high for part of the year. It was that good for the Texas economy. Now the price of oil is pretty low. Is that going to be bad for the Texas economy? So far, we haven’t seen that, but it certainly could fall off.

We also had a lot of insurance checks written for hurricane damage in Houston. And so a lot of money went into that economy in the last six months that might not happen in the next six months. I mean that there are – I think in this world it’s good to be conservative and $100 million probably wouldn’t be the most conservative number I guess is another way to put it. Is it capable of doing that sort of number? Yes. But at some point, you start to kind of cap out.

I mean, we do almost $400 per slot machine per day. We are limited as to the number of slot machines. At some point, you just physically can't squeeze more people in the place. Occupancy is up in the 90s. You can raise the rates, but most of the occupancies come from gamblers anyway. So at some point, you kind of reach the max that you can earn. Our total investment in the property is currently $430 million, I guess, undepreciated. And so, at $90 million, you're getting a 20% cash on cash return on a property, which is a pretty good number, and all of which tells you precisely why we want to build Sugarcane Bay. I mean, if we can find the money, we want to build Sugarcane Bay because you just look at the numbers of L'Auberge.

The other thing I’d maintain is that is the one market, for whatever reason, that December is a seasonally strong month. And so I think the weather is pretty nice there. Usually, December is not a seasonally strong month. And so I think there is some seasonality, but I wouldn't just annualize the fourth quarter numbers. But yes – should we be up over last year? Yes. I think we can be up over last year. I don't think I would go quite as far as $100 million.

Daniel Yu – JPMorgan

Okay. And then the second one is sort of legislative updates. Is there any sort of news that you are hearing from Texas?

Dan Lee

There is a movement in Texas to try to legalize it. There almost always is movement in Texas to try to legalize it. This time, it is being pushed by the same cast of characters. Racetracks want slot machines; Telly Fratida [ph] wants to put casinos in Galveston. The Indian tribes want to open up casinos even though they contractually agreed to the state years ago not to. Then there are 100 Indian tribes – more than 100 Indian tribes that existed once in Texas. And so if they get their foot in the door, you're going to have Indian tribes come out of the woodwork and try to get better recognition and open casinos that don't have to pay taxes. So it is a threat.

On the flipside, it's in the Texas Constitution, which forbids gambling. To change the Constitution takes a two-thirds vote of the House, two-thirds vote of the Senate, and a majority vote of the people. We think it is unlikely to get any one of them. And the current governor has actually, in the past, somewhat favored it, but he has said he is not in favor of expanded gaming at this time. So, I think we okay there.

Ohio had a bill for casino gaming in November. It lost handedly. But I suspect they will look at it again in Ohio. Kentucky looks at it almost every year. I think it is not going to happen from every other year legislature. One of the nice things about St. Louis is there is no Indian tribes, and the only states around there are Missouri and Illinois and they both already have casinos. So further legalization has very little impact in St. Louis and Proposition A put a cap on the number of licenses in Missouri. There is already a cap on the number of licenses in Illinois. And so the competitive environment in Missouri is pretty stable.

Reno, a big part of the problem with our Reno property is really a market issue. They keep expanding the Indian casinos in California and it cuts into Reno market. We actually – we are right on Interstate 80 right at the state line. And Interstate 80 is the umbilical cord to Northern California. If you are in Northern California and you want go anywhere east – if you want to go west, you have to swim; if you want go anywhere east, you're on Interstate 80. Traffic counts are down about 10% on Interstate 80, which is a pretty striking comment on the economy in general, and in the northern California economy in particular.

Operator

And your next question is from David Katz with Oppenheimer.

Dan Lee

Hi, David.

David Katz – Oppenheimer

Hi, afternoon. A couple of questions. Firstly, just listening to the updates on Sugarcane Bay and then some discussion from Steve about the bank deal and the prospects of getting that amended at this point, I realize that it’s difficult to talk about negotiations on a conference call. But just theoretically speaking, if you were a bank in the present environment and looking at adjusting interest rates and adjusting maturities prospectively and covenants as well, how would a bank sort of deal with the prospect of Sugarcane Bay and Baton Rouge, and beyond that and I guess at some future date, Atlantic City? How would they think about covenants going forward, not knowing what is going to happen with Sugarcane Bay? And then I just have a quick question about corporate.

Dan Lee

Look, banks are fighting for their own survival. So they are trying to shrink the asset side of their balance sheet. They're being told to do so by the bank examiners. And there have been all sorts of reports that the federal government speaks out of both sides of its mouth. Congress runs around and says, make loans, and the bank examiners say, shore up your capital. And you could get some glimmer from our impairment charges of what they must be going through. I mean, their auditors must look at the decline in bank stocks and turn around and say, okay, you have to mark-to-market all of these mortgages. And then the bank stocks fall more and it's like you've got to mark this even more to market.

The problem the banks have is the newspaper reporters write the article about their $10 billion loss and their customers actually care about it. When – if you really get into that, a lot of those charges are probably similar to the impairment charges we're taking now that really have no impact except, in their case, the customers care and start withdrawing deposits and then it becomes a self-fulfilling prophecy and kind of a death spiral in it. So there's a lot of blame to go around on how the world got into this economic nest. But accounting and the mark-to-market is a good chunk of that blame.

So they are trying to shrink their book. And if you ask the banks, they would like everybody on every project to stop construction, don't draw down the line, cancel the unused credit facility and let them shrink their book because that allows their bank to get healthy again so they can live to fight another day. That is very simple. They do have a way to stop River City. I think if they could find a way to stop it, they would. They don't have a way. So we will go ahead and complete River City. I'm pretty (inaudible) about that.

Now, our bank line matures in December of 2010. Sugarcane Bay would not be open by December of 2010. So you can’t really use our $625 million bank facility to build Sugarcane Bay. And if you went to banks today and said, please give us a big credit facility to go build Sugarcane Bay, they would think we were nuts. They are trying to deal with, you name it, City Center, Fountain Bleu, Echelon, Revel, all of these other unfinished projects which are front and center in their eyes. And so that is the answer.

So – I mean, that kind of goes back to what we told the Louisiana gaming authorities. In today's market, we're not sure you could get the money at all. But it is pretty clear if we could get the money, it would be very expensive and it wouldn’t make economic sense. We will continue to watch this and it should straighten out at some point. If it doesn't straighten out at some point, my goal is hide under your desk, there is not a whole lot we can do about it.

David Katz – Oppenheimer

So, is this – what it sounds like is whatever occurs with your current bank deal, whether it is renegotiating or getting new ones, etc., that will be separate and apart from anything you would use for Sugarcane Bay and that would be an issue you would deal with down the road as needed.

Dan Lee

Yes. The covenant issue that we tend to ask the banks for is a very small change, the sort of change that a couple of years ago you might have gotten on with no fee at all. We will end up paying a fee; we know that. Frankly, it looks like extortion from our perspective. It might cost us $3 million or $4 million. But it is affordable and I think it can be done. We have talked to a number of banks and that is kind of the parameters.

One of the big tools we have is our bank facility at one point was $1 billion. We actually shrank it to $625 million because we didn’t need it. And there are covenants in our 8.75% and 8.25% bonds that limit how much of it we can use. The tightest one is the 8.75% bonds that limits us to using $350 million. And our intent was to call those when they became callable. They became callable last October. So we kept the bank facility at 6.25% thinking that, in October, we would refinance the bonds, that would open up the ability to use virtually the entire credit facility or most of it and that would give us a real good start on the financing for Sugarcane Bay, etc., etc. You know, by the time the bonds became callable, the high yield market had fallen apart, it didn’t make economic sense to refinance the bonds.

So in effect, we have a $625 million facility, of which we can only used $350 million. The $350 million is enough to build River City. Well, the banks have reserve requirements based on the full $625 million. So they would love us to shrink the line. And shrinking the line allows them to record a gain right away because they got fees when that line is put in place in the first place that they amortize over the life of the line. If we shrink the line, they book it in income right away.

So probably the biggest incentive we can offer the banks is to tweak this covenant a year from now and we will shrink the line slightly today. We have talked to a couple of banks about that and they stand up and applaud very loudly. So this is not a big asset. It is a small tweak of a covenant that doesn't really change our credit worthiness. It simply reflects the later opening date of Sugarcane Bay. It is not even completely clear that we need it, but I think in an abundance of caution, we should go get it to resolve it before it becomes an issue and we will get it done.

Now, if we went and asked for more than that – and we have had discussions with banks that say, you know, we would like to build Sugarcane Bay, and they just say, you can't. We are not willing to do that. Even our friendliest banks are not willing to loan us money on terms that would make sense for Sugarcane Bay. This will change.

I mean, even the worst credits in the industry, the guys who are in bankruptcy or close to bankruptcy, when the dust clears, most of that senior bank debt is going to be money good. The equity will get wiped out. The sub debt might get wiped out. But the traditional lenders, most of them were pretty careful where they put the money and they are pretty senior in the capital structures. And most of that money is going to come out reasonably okay. And so, when that becomes clear and obvious, and assuming that President Obama figures out a global fix to banking, that’s, in our view, where people will first start making loans. And the fact that we have so little senior indebtedness positions us extremely well to arrange that financing when the time is right. It is just not today.

David Katz – Oppenheimer

Perfect. That is very helpful. Just one more quick question about corporate, which was down a chunk in the fourth quarter. And I apologize if I missed it. But could I get some sense about whether or not that $8 million is a sustainable number, particularly given some of the valuation work you did that will probably show up in 1Q? It has been $38 million, $39 million. Is that still a good run rate?

Steve Capp

I would say it's a ballpark of $40 million. We're trying to hold it under $40 million. I think we had a number of things that were a little bit over-accrued when it got to year-end, like (inaudible). We did pay bonuses this year. A lot of casino companies did not. But the bonuses we paid this year were smaller than the bonuses we paid last year. But we were happy that we were able to pay bonuses. And so we were a little bit over-accrued on that and a few other things. So I wouldn’t forecast $32 million a year, but I think we can hold the line at or about $40 million.

Operator

And your next question is from Dennis Forst with KeyBanc.

Dan Lee

Hi, Dennis.

Dennis Forst – KeyBanc

Hi. I had a few different questions. On Sugarcane Bay, Dan, in the press release, it talks about Louisiana gives you permission to extend and open by July 30, 2010. You just said you're not going to open it by December 2010. So that means you have got to go back to Louisiana seeking additional extensions?

Dan Lee

We went to them and said there is a whole bunch of deadlines in both of those development agreements. And we basically said we want to have like a 90-day stay because we can't arrange the money now. I remember somebody on the staff asked us what happens if the capital markets haven't gotten better in 90 days. I said, then we will be back asking you for another 90 days.

Now, they have the right – as long as we are not meeting the deadlines, they have the right to take the licenses away, no other real recourse. It is not like – in Missouri there are some penalties if we don't get open by certain dates, but in Louisiana, there are not. Their right is to take them away.

Now, in states with limited number of licenses, like Louisiana, they want to see the licenses get used. It's employment, it's tax revenues and so on. And so that’s why they have these deadlines. And I've said to them, listen, if they were to move to revoke the licenses, we would move to reopen Harrah's. We still own the Harrah's hotel in Lake Charles. We still own the two Harrah's riverboats. They are tied up in Orange, Texas. We would have to paint them and get some slot machines on them and so on, and we would seek to reopen them. That’s not the best thing for us. It’s not the best thing for the state. We would rather build the two new places.

And I think as long as we are making diligent efforts to move in that direction and as long as it is in our best interest to open as soon as possible, it's in the state's best interest to open as soon as possible. We are probably their best horse for getting the best facilities open as quickly as possible. The biggest company in the state is Harrah's. All you have to do is look at today's newspaper to see what shape they are in.

We are the second biggest company in this state. And we were very clear to them. We are solvent. We are one of the healthiest balance sheets in the industry. We are very proud of the job we do in Louisiana. We are one of the biggest employers, we are one of the biggest taxpayers, and we are financially strong and we want to be strong. It is not in our best interest or their best interest for us to start construction on Sugarcane Bay without having reasonable certainty of having the money to finish. So we are on the same team on this.

Dennis Forst – KeyBanc

Yes. And clearly, if they pulled your license, it would take twice as long to rebid it and find somebody else to do the building.

Dan Lee

Then they have to win a local referendum. We have already won the local referendum (inaudible) and it would take them much longer with a different horse.

Dennis Forst – KeyBanc

Okay, that clarifies it.

Dan Lee

No. On the other hand, listen, they are very important regulators to us. We make half of our income in Louisiana and so on. So they don't want to see us – they don't want to give us extensions and find us turn around and use the money somewhere else. So they are watching us pretty carefully, and we won't do that. We really want to build Sugarcane Bay. Look at the numbers of L'Auberge. Sugarcane Bay is kind of a slam dunk. I mean, you really want to build this. You just can't do it at 20% capital.

Dennis Forst – KeyBanc

Sure. Okay. And then on Lumiere, you said that you started breaking out the president numbers separately in the fourth quarter. We have the president numbers back in '07. Steve, could you supply us with a schedule that just has revenues and EBITDA by each of those two components for the first three quarters of '08? I assume you're going to do it as you go along, but just so it would make it easier for us to model?

Steve Capp

Sure.

Dan Lee

Sure thing, Dennis. No sweat.

Steve Capp

We could probably post it on our website so everybody has it.

Dan Lee

Yes, we probably should have (inaudible).

Steve Capp

We will do that schedule and put it on the website. We will e-mail it to you, Dennis, but we will put it on the website for anybody else who wants it.

Dan Lee

That’s [ph] mostly for '08, Dennis, you want to see that? I will assume so.

Operator

And there are no further questions at this time.

Dan Lee

Great. All right. Thank you, everybody. I'm sorry it took us so long, but I hopefully answered all your questions. Take care.

Operator

This concludes today's conference call. You may now disconnect.

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