Las Vegas Sun

March 24, 2019

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Resort at Summerlin financial challenges outlined

Moody's Investors Service lowered its ratings on the Resort at Summerlin's debt, citing concerns about the company's liquidity, weak operating results and doubts it will be able to generate enough cash to cover debt payments through next year.

Meanwhile, long-time casino executive Darrell Leury was named the new president and chief executive officer of the resort, which opened in July. Brian McMullan remains president of Seven Circle Resorts Inc., whose parent company -- Swiss Casinos of America Inc. -- owns the luxury resort at Rampart Boulevard and Summerlin Parkway.

McMullan had been serving as resort president for months after the resort's previous chief executive left and had reviewed several candidates for the position. Leury has served in executive positions at the New Frontier and at Bally's Las Vegas.

The ratings downgrades affect the Resort at Summerlin's $100 million of floating rate first-mortgage notes and $120 million of 13 percent senior subordinated notes.

Moody's said its new B3 rating on the mortgage notes, down from B1, "reflects our expectations that the collateral value securing the debt should fully cover the first-mortgage notes under a stress case scenario."

Moody's also cut its rating on the subordinated notes to Caa3 from Caa1. The rating is generally assigned issues that are in default or in danger of default.

Moody's said it believes the company "will have difficulty meeting its fixed-charge obligations over the remainder of 1999 and in 2000." It said the resort is liable for about $10 million of interest expense this year, excluding interest on the first mortgage notes that will be funded from an escrow account.

The ratings agency also said the Resort at Summerlin faces about $52 million of fixed charges next year. "Consequently, Moody's expects that the Resort at Summerlin will depend on further equity contributions from its owners to avoid defaulting on its debt obligations," it said.

"Assuming that the company's owners invest additional funds necessary to cover any shortfall ... to the extent any exists, the success of the property will largely depend on attracting a higher volume of local customers and tourists willing to pay significantly higher room rates than have traditionally been realized by Las Vegas Strip casinos," Moody's said.

Attracting more locals will be difficult, Moody's said, because Coast Hotels & Casinos Inc. is building a new resort one-quarter mile away that will be "a formidable competitor" to the Resort at Summerlin.

John Tipton, the Resort at Summerlin's chief financial officer, said the Moody's move was expected because Standard & Poor's had previously downgraded the resort's debt.

"However," he said, "our Swiss parent is a very strong company that has the ability and willingness to address the need for additional liquidity."

Tipton said he meets quarterly with the resort's creditors. "They're well informed of all the issues and remain quite confident in the project," he said.

The Resort at Summerlin is majority owned by Swiss Casinos of America. It experienced a "soft" opening this summer, with only one of its two hotels and two restaurants available. The resort expects to have all amenities open by the end of November.