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M Resort CEO open to a role at casino after Penn National sale

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The M Resort is shown near the Interstate 15 and St. Rose Parkway interchange.

Updated Friday, Oct. 8, 2010 | 4:11 p.m.

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Anthony Marnell III

Map of M Resort

M Resort

12300 S. Las Vegas Boulevard, Henderson

It's been rough sledding for the M Resort, which opened in March 2009 at a time of precipitous decline for the Las Vegas economy.

After only four months in operation, the casino could no longer afford to make interest payments on its $700 million loan. M Resort secured the financing in September 2007, before the credit crisis hit and when Las Vegas tourism was flying high.

Which is why, after less than two years at the helm of his self-named resort, CEO Anthony Marnell III may well lose the property he and his family built.

On Friday, Penn National Gaming announced it had acquired $860 million in outstanding debt on the $1 billion resort for a meager $230.5 million -- a deal that gives Penn the right to take over ownership of the resort, which is worth less than the debt owed on it.

Marnell isn't counting himself out just yet.

"I've had two conversations with (Penn National Gaming CEO) Peter Carlino in the last 24 hours and they've been very positive, open and professional," Marnell said Friday.

Marnell said he is meeting with Carlino on Monday to discuss what Penn has in mind for the resort -- and what, if any, Marnell's role at the resort might be.

Penn spokesman Joe Jaffoni said the company is expected to discuss a plan to exchange the debt for equity in the resort. The plan requires regulatory approval in Nevada.

It's unclear what the transition means for employees, though the casino is in no danger of closing and will continue to operate in the interim, Marnell said.

"I have no idea what they have in mind. But I do know this: Penn is a very financially stable company with an enormous desire to get into Las Vegas. I think they'll do the right thing."

Marnell said he's optimistic about the future of his property, which generates a positive cash flow that would mean a profit if not for its unwieldy interest payments. The resort, he said, has improved EBITDA from last year and is on track to generate "tens of millions" this year.

EBITDA, a widely used performance measure in the casino industry, represents earnings before interest payments and certain other expenses, like taxes and depreciation.

Marnell declined to specify how much the resort earns or the extent of its earnings increase, and would only say that it is in line with what comparable properties in Las Vegas are earning in spite of the M's location at the southern end of the Las Vegas Valley, far from the Strip.

"I failed in the capital structure of this company but I feel we've succeeded in growing a healthy and viable brand," he said. "We're competing fiercely in this market and a lot of customers like us. We're just not generating enough cash flow" to make loan payments.

In fact, the loan was troubled from Day One.

Lender Bank of Scotland -- one of several victims of the U.S. mortgage crisis that spread to Europe -- nearly went under before M Resort opened. The bank was bailed out by the UK government and merged with Lloyds Banking Group -- another bailout recipient.

"We've been discussing the terms of the original loan since before we opened," Marnell said.

As a family-run startup, the M Resort wasn't strong enough financially to refinance its debt, like casino giants in Las Vegas have done to stay afloat in the recession.

Pre-opening discussions to reduce the resort's interest rate were ultimately rejected in London, where the bank is based, Marnell said.

The bank also contemplated a plan to ride out the recovery by acquiring company warrants, or options to own the resort at a future date, he said.

The bank's outlook changed as the economy worsened, however. It began soliciting buyers for its debt in January.

"I don't have any ill will toward the bank," Marnell said. "They did what they had to do. Over time, their desire for equity diminished and the desire for cash grew."

A representative with Lloyds Banking Group declined comment.

MGM Resorts International, which had a second-tier loan in the M Resort for $160 million, wrote down the value of the loan and walked away.

Marnell, who made an investor-backed bid for the resort that fell short of Penn's offer, said he's prepared to invest more of his own money into the M for a chance to continue running the property.

"My hope is that Penn maintains the four-star atmosphere and culture that keeps these great team members here and uses its 12 million customer database to grow the property."

"I want to be at the M because the M is me. We've grown from a hard 2009 into 2010 and into what looks to be a better 2011. But I don't know if they'll necessarily agree."

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