Friday, Aug. 30, 1996 | 11:59 a.m.
Financial pressures have resulted in the suspension of construction on a major expansion of the Stratosphere hotel-casino, the company announced today.
Company officials said work has been suspended indefinitely on the company's phase two development.
As originally planned, phase two consisted of a new hotel tower with an additional 1,000 rooms, a pool area and spa and additional retail space.
The company said the decision to suspend the project was based on an expected cash shortfall and the need to restructure the company's existing indebtedness.
The company recently announced that it hired Donaldson, Lufkin & Jenrette, a New York-based investment banker, to help restructure its debt.
Stratosphere officials stressed that the change in construction plans will not affect ongoing operations or guests visiting the existing casino, hotel and 1,149-foot tower.
At 10:30 a.m. today, Stratosphere stock was down nearly 14 percent, trading at $1.94, off 31 cents, on volume of 1.3 million shares.
The in-progress reconfiguring of the existing casino floor will continue and is scheduled to be completed in October. Stratosphere, which opened April 29, includes a 100,000-square-foot casino, 1,500 rooms, an internationally themed retail shopping mall, seven restaurants, and the tower.
A recent prospectus on Stratosphere said that Minneapolis-based majority owner Grand Casinos Inc. has agreed to contribute up to $20 million a year for three years in a "standby-equity commitment" in the event Stratosphere's cash flow fell below $50 million a year.
The agreement was to ensure Stratosphere had sufficient cash flow to pay equipment leases and interest on $203 million of first-mortgage notes. In addition to a 14.25 percent interest rate, the notes provide for payment of contingent interest equal to 10.8 percent of the company's consolidated cash flow up to $100 million in any 12-month period.
Stratosphere also has embarked on a new marketing effort in a bid to lure customers to what critics have called a poor location.
The company has begun a bid to attract more gamblers by guaranteeing high-payout percentages on slots, liberalizing table games and slashing food, room and beverage prices.
Richard Schuetz, a casino marketing expert brought in to revitalize Stratosphere operations, said every $1 Stratosphere slot -- except the multisite progressives -- will be guaranteed to pay at least a 98 percent return.
Stratosphere also cut most food and beverage prices dramatically, and more competitive room rates have seen occupancy climb to 100 percent for each of the past 10 days, he said.