JOHNSTON, Iowa | The three groups seeking a state license for an onshore casino in Woodbury County passed the first test with state gaming regulators Thursday.
In presentations to the Iowa Racing and Gaming Commission, each developer outlined how they planned to pay for their projects. After the meeting, the top two commissioners said they didn't see any red flags in any of the financing plans.
"What we look for at this stage of the game is to meet our minimum requirements, which are essentially demonstrate you can put the financing in place," IRGC chairman Jeff Lamberti told the Journal. "At this point, I think we can say they have met the minimum thresholds."
"They all passed the thresholds," IRGC vice chair Greg Seyfer added. "If they hadn't, I would have spoken up."
In colorful PowerPoint presentations and oral testimony, officials with each group stressed they had firm commitments for more than enough funding to construct and operate their facilities.
Warrior Entertainment, a development group led by Ho-Chunk Inc. and the Winnegbago Tribe of Nebraska, has lined up $152.3 million in funding for the its proposed $122.3 million casino, hotel and entertainment complex, Ho-Chunk CEO Lance Morgan said.
"We wanted to show up here with no holes in this project," Morgan told the commission. "We wanted to make sure you knew that we had more than enough resources for this project."
Warrior Entertainment's commitments include up to $40 million in cash equity and as much as $70 million in debt financing. Dougherty Funding, a Minneapolis-based investment bank, has agreed to $50 million in construction financing for the project, which would be designed around the historic Warrior Hotel and adjacent Davidson Building in the 600 block of Sixth Street in downtown Sioux City.
Sioux City Entertainment, the developer of the proposed Hard Rock Hotel & Casino, has lined up as much as $138.5 million in funding for its $118.5 million project, which would incorporate the historic Battery Building 323 Water St. in downtown Sioux City, SCE President Bill Warner said.
Warner said the excess funds will help the developer "account for foreseen circumstances as the construction project commences."
"More importantly, it really provides us with the opportunity to continue to grow, as we open the project, see what the demand is, and reinvest in the project, as opposed to having to stay static with the first phase of the project," he told the commission.
SCE, which was forrmed by Las Vegas-based Warner Gaming, has negotiated a $90 million long-term loan from Summit Partners, a Boston-based growth equity firm with extensive experience in gaming developments. Under the agreement, Warner said, Summit would have the option of taking a 30 percent equity stake in the Sioux City project, subject to IRGC approval.
In his presentation to the commission, a top attorney for Penn National Gaming Co. sought to differentiate his company's financing plans with that of its two competitors for the single state license.
Penn's Iowa-based company, Belle of Sioux City, has offered a choice of two different sites for its Hollywood-themed casino -- a $160 million project in downtown Sioux City along Gordon Drive and a $167 million venture in rural Woodbury County
Penn, the nation's second-largest gaming company, would not require third-party financing for either project, deputy general counsel Carl Sottosanti told the commission. The company would tap a combination of its existing free cash flow, which currently stands at about $400 million, and existing revolving loan funds of more than $600 million, Sottosanti said.
"Penn National can do this project," Sottosanti told the commission. "Nothing in our discussion today has any backup plans, any hedges, any contingency plans, no discussion of diligence. We're here to tell you we can write the check and want to do it."
The company, he said, also is not seeking government incentives for either site for its proposed onshore casino and entertainment complex.
The city of Sioux City has committed $25 million of Tax Increment financing to the Warrior project, and $22 million to the Hard Rock proposal, with increased property taxes from the new construction repaying the long-term bonds the city would issue.
During the financing presentations Seyfer was the only commissioner to ask questions.
In response to a question from Seyfer, Dougherty Funding executive vice president and chief operating officer Jerry Tabolich said the company is still conducting its due diligence on the project.
The interest rate for the Warrior construction financing would be prime plus 2.25 percent, with a floor of 6.25 percent, Tabolich said.
In response to a question from Seyfer, Warner said the Summit Partners financing would carry a 14 percent interest rate. Summit Partners was represented at the meeting by one of its partners, Jamie Feeland.
Sioux City Entertainment intends to raise $5 million to $10 million through a private common stock offering that would give preference to residents of Sioux City, Woodbury County and Iowa.
Morgan said Warrior Entertainment also is considering raising capital from local investors.
At the next IRGC meeting on Jan. 10 in Des Moines, the three prospective casino developers will have a chance to make a full-blown presentation of their proposals. After a visit to the sites in March, the five-member commission is scheduled to award the license on April 18.
Seyfer said evaluating the financing portion early on is an essential part of the selection process. The last time the commission awarded new licenses, in 2010, two of the four proposals -- in Tama and Wapello counties -- ran into financing problems nearly from the start, he said.