IBJNews

Centaur's junior lenders press for bankruptcy liquidation

Back to TopCommentsE-mailPrintBookmark and Share

Hoosier Park owner Centaur Inc.’s junior creditors are attempting to push the company into Chapter 7 bankruptcy liquidation instead of Chapter 11 reorganization.

Centaur declared Chapter 11 bankruptcy early last month. In Delaware court, the Indianapolis-based firm—which owns Anderson’s Hoosier Park horse track and casino—is attempting to restructure $680 million in debt.

Most of the debt can be traced to loans the company took out before the recession to pay for its $250 million Indiana slots license, expand Hoosier Park and pursue development of another racino.

The bankruptcy breaks Centaur’s creditors broadly into three groups: first-lien lenders, second-lien lenders and unsecured creditors. Centaur has reached an agreement in principal with the first-lien group. But the second-lien lenders are not satisfied with Centaur’s reorganization plan. They’re also skeptical the company has the resources to proceed with its stalled Valley View Downs racino project outside Pittsburgh.

Late last month, the second-lien lenders filed court papers requesting a conversion of Centaur’s case to Chapter 7. Centaur’s primary asset at issue is $50 million in cash it set aside as security for its pending Pennsylvania gambling license. Centaur landed a harness racing license there in 2007, but its application for a slots license from the Pennsylvania Gaming Control Board has not been approved.

Centaur owes $383 million to the first-lien group, which is made up of dozens of hedge funds; $192 million to the second-lien group, a similar collection of hedge funds; and $106 million to unsecured creditors. Centaur’s reorganization plan proposes wiping away all its debt by restructuring itself into a new company, then issuing a combination of $115 million in new debt, warrants and "payment-in-kind, or PIK, notes.

Warrants would give the first-lien group the right at some point in the future to buy Centaur stock at a predetermined price. PIK notes are an obscure form of debt that allows the issuer discretion over when to pay interest, with the unpaid portion added to the principal and compounded until a balloon payment at maturity. Centaur is still in negotiations over exact terms for the warrants and PIK notes.

Wells Fargo Bank represents the second-lien lenders as agent. In court paperwork, Wells Fargo points out that nearly all the benefits of Centaur’s reorganization plan would go to the first-lien group, while second-lien lenders would receive just 2.2 percent of the “deeply subordinated” PIK notes. Wells Fargo argues that general unsecured creditors would receive no recovery under Centaur’s plan.

Centaur still hopes to build Valley View Downs, which is key to the company’s future growth. But the second-lien group considers a revival of the Pennsylvania racino project unlikely. Wells Fargo points out that construction of the horse track casino would require at least $176 million, and calls the development project “wholly speculative.”

“The prudent course of action is to stop the bleeding, conserve assets for the benefit of creditors, and convert the cases to Chapter 7 rather than maintain the façade of a development opportunity and be forced to subsidize the costs and expenses of [Centaur’s] operations and Chapter 11 cases,” Wells Fargo wrote in its Chapter 7 conversion request. “Instead, [Centaur has] chosen to not only drift along in Chapter 11 with no prospect for reorganization, but to also sacrifice the asset value that would be available for payment of their creditors’ claims.”

Centaur considers Wells Fargo’s Chapter 7 conversion request a negotiating tactic aimed at increasing the second-lien group’s leverage. In a written statement in response to IBJ’s inquiry, Centaur spokeswoman Susan Kilkenny pointed out that the second-lien group is junior in the company’s capital structure.

“We are absolutely opposed to this [conversion to Chapter 7] action. We believe there is significant value above the $50 million securing the gaming license application in Pennsylvania,” Kilkenny wrote. “We remain committed to that project and building the facility as quickly as possible.”

Kilkenny wrote that Centaur takes issue with assertions its reorganization plan creates high risk for creditors. She reiterated that Centaur has reached an agreement in principal with its first lien lenders, and called continuing discussions with the company’s remaining creditors “open and productive.”

“We remain extremely confident that the ultimate plan of reorganization will create as much value as possible for our stakeholders and position the company for success,” she wrote.

 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. The $104K to CRC would go toward debts service on $486M of existing debt they already have from other things outside this project. Keystone buys the bonds for 3.8M from CRC, and CRC in turn pays for the parking and site work, and some time later CRC buys them back (with interest) from the projected annual property tax revenue from the entire TIF district (est. $415K / yr. from just this property, plus more from all the other property in the TIF district), which in theory would be about a 10-year term, give-or-take. CRC is basically betting on the future, that property values will increase, driving up the tax revenue to the limit of the annual increase cap on commercial property (I think that's 3%). It should be noted that Keystone can't print money (unlike the Federal Treasury) so commercial property tax can only come from consumers, in this case the apartment renters and consumers of the goods and services offered by the ground floor retailers, and employees in the form of lower non-mandatory compensation items, such as bonuses, benefits, 401K match, etc.

  2. $3B would hurt Lilly's bottom line if there were no insurance or Indemnity Agreement, but there is no way that large an award will be upheld on appeal. What's surprising is that the trial judge refused to reduce it. She must have thought there was evidence of a flagrant, unconscionable coverup and wanted to send a message.

  3. As a self-employed individual, I always saw outrageous price increases every year in a health insurance plan with preexisting condition costs -- something most employed groups never had to worry about. With spouse, I saw ALL Indiana "free market answer" plans' premiums raise 25%-45% each year.

  4. It's not who you chose to build it's how they build it. Architects and engineers decide how and what to use to build. builders just do the work. Architects & engineers still think the tarp over the escalators out at airport will hold for third time when it snows, ice storms.

  5. http://www.abcactionnews.com/news/duke-energy-customers-angry-about-money-for-nothing

ADVERTISEMENT