Las Vegas Sun

November 21, 2018

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Ameristar enthusiastic about casino deal despite loss on Reserve

When the Reserve opened its doors in 1998, Ameristar Casinos Inc. valued the south Henderson property at $125 million.

On Wednesday, Ameristar agreed to sell the property for considerably less -- $70 million -- to one of its most powerful competitors in the Henderson market, Station Casinos Inc. Yet Ameristar officials say they're pleased with the deal because of what they'll be acquiring in exchange from Station for $475 million -- two of Missouri's largest casinos, located in Kansas City and in St. Charles near St. Louis.

"We believe this was a very good deal for both parties," said Thomas Steinbauer, chief financial officer of Ameristar. "We felt the price (for the Missouri casinos) was extremely reasonable. The Missouri assets ... would cost considerably more (than $475 million) to duplicate today."

Investors seemed to feel the deal was a win for both companies -- Station rose 94 cents Wednesday to $15.81, while Ameristar roared ahead more than 27 percent to $6.13.

The two major debt rating agencies reacted differently to the transaction. Standard & Poors placed its Ameristar ratings on CreditWatch with positive implications.

"The acquisition improves Ameristar's business diversity by adding two steady cash flow producing properties to its portfolio and by selling an underperforming property," S&P said.

But Moody's Investors Service placed its Ameristar ratings on review for possible downgrade, even though it said the $70 million price for the Reserve is appropriate because it has been an underperformer.

Negative factors cited by Moody's include the financing structure for the deal, tough competition in Missouri and the cost, risks and benefits of the planned development of the St. Charles casino. The risks are mitigated by retention of the existing Missouri casino managers, the historical performance of the two riverboats and the benefits of greater diversification.

The Reserve has proved troublesome for Ameristar since the Las Vegas company acquired it in its merger with Gem Gaming in April 1996 in a stock transaction. In January 1997, the Nevada Gaming Commission denied Reserve developer and Gem Gaming founder Steven Rebeil a license. Ameristar cleared the way for the property to open several months later when it agreed to pay Rebeil and other former Gem shareholders $32.65 million to liquidate their position in Ameristar.

Ameristar spent $70 million more on the construction of the resort, raising funds through cash flow and bank debt and opened the resort in February 1998. But while the company continued to show substantial growth at its casinos in Mississippi and Iowa, the Reserve depressed Ameristar's earnings -- last year, the Reserve posted an operating loss of $7.1 million. The year before, the Reserve's operating loss was $16.1 million.

Now, Steinbauer said, Ameristar will be acquiring two properties in a market where it has found success -- the Midwestern riverboat market.

"It's not necessarily that we don't want a Las Vegas property," Steinbauer said. "The dynamics of this transaction were so attractive that it made the Reserve an asset that could be traded to take this company to the next level of growth. We traded an asset here for a pair of assets that more than doubled the size of this company in one transaction."

Steinbauer said the properties will be rebranded under the Ameristar brand name, and expects synergies from rolling the two casinos into its existing Midwestern holdings. The management at the casinos will remain the same.

Though Steinbauer said Ameristar will need time to absorb the two casinos, he said growth is still an objective of the company, which will remain based in Las Vegas.

"Our strategy has always been to seek out value and future acquisitions, and to be aggressive in attempting (buyouts)," Steinbauer said. "We've always had an aggressive growth strategy, and we will continue to analyze various options after we get this one closed and operating under our own name."