Cannery casinos weigh on company’s earnings

By Steve Green

Thursday, Aug. 27, 2009 | 9:52 a.m.

Australia's Crown Ltd. posted further losses Thursday because of its U.S. gaming investments, this time writing off most of the value of its interest in Cannery Casino Resorts LLC of Las Vegas.

Crown reported a loss for the year ended in June of $1.197 billion (Australian) vs. a profit one year earlier of A$3.546 billion. In the six months ended in June it lost A$788 million (U.S. $651 million.)

Before today's report, Crown had written off A$454.9 million in investments in the Fontainebleau resort development project in Las Vegas, Station Casinos Inc. and Harrah's Entertainment Inc.

Today, Crown said it took a loss of A$378.2 million to write down the value of its investment in Cannery, reducing the value of its stake in Cannery to A$49.6 million.

A $1.8 billion deal for Crown to acquire Cannery was canceled in March, and instead Crown paid Cannery a U.S. $50 million break-up fee and U.S. $320 million for a preferred instrument that can be converted to an equity stake of 24.5 percent in the company.

"The asset write-down has been precipitated by the effect that current economic conditions in the United States have had on Cannery’s business. Crown considers it is likely that Cannery’s Las Vegas casinos will be affected by the U.S. recession for some time," Crown said in a statement. "In addition, the original projections for the new permanent Meadows Casino in Pittsburgh have been adversely impacted by the onset of the U.S. recession."

Besides its Pittsburgh casino, Cannery has two casinos by that name in the Las Vegas market and also operates the Rampart casino at the JW Marriott Resort in Summerlin.

As for Fontainebleau, Station and Harrah's, Crown said it took additional write downs in those investments and wrote off a $31.3 million loan to Fontainebleau.

The full-year write-down for those investments totaled A$592.8 million, which includes the previously reported $454.9 million write-down.

"The global financial crisis has had a major adverse impact on the North American casino industry, leading to a requirement to write down the carrying value of Crown’s investments in these markets. In this context, Crown’s investments in North America were ill-timed," Crown Chief Executive Officer Rowen Craigie said in a statement.

The company said the outlook for its Australian casinos, Crown Melbourne and Burswood, is positive and that it's excited about its investments in Macau.

Privately-held Cannery doesn't publicly report its financial results and the company had no immediate comment on today's write-down by Crown.

Debt rating agency Standard & Poor's earlier this month lowered its rating on Cannery to B from B+ with a negative outlook for some $860 million in debt, saying "Cannery is experiencing weak operating performance at its Las Vegas properties and a slower-than-expected ramp-up at its Pennsylvania property."

Companies in the B class under Standard & Poor's definitions face uncertainties and exposure to adverse business conditions, but currently have the capacity to meet financial commitments.

Separately, Cannery on Wednesday named Xavier Walsh as chief operating officer. Walsh, will oversee the four Cannery properties, working directly with the general manager at each casino.

"Xavier Walsh has the experience and expertise that will make him an excellent fit for the Cannery Casino Resorts family," Bill Paulos, Cannery co-founder and co-principal, said in a statement. "We are very pleased he has joined our team and look forward to his growth and success within our company."

Walsh began his gaming career at the Australian gaming company, Tabcorp Holdings Limited. After holding positions in both its corporate and gaming divisions, Walsh was appointed to Chief Financial Officer at the company’s Star City Casino in Sydney, Australia. The company later acquired the Queensland-based casino company, Jupiter’s Limited and Walsh was named General Manager of the Brisbane casino, Conrad Treasury. Walsh was later appointed Managing Director of the company’s three Queensland casino properties before relocating back to Sydney to take up a divisional role as executive director of strategy and commercial development. Prior to joining Cannery Casino Resorts, Walsh worked with Crown Ltd.

In announcing the hiring of Walsh one year ago, Crown said the plan at the time was for him to become chief financial officer of Cannery as part of the planned acquisition.

Also at Cannery, Tom Lettero was named president and chief financial officer.

"Tom Lettero has been a key player throughout his tenure with Cannery Casino Resorts and has played a crucial role in the growth and expansion of the company," Bill Wortman, co-founder and co-principal of Cannery Casino Resorts, said in the statement. "We look forward to his continued success at Cannery Casino Resorts."

Lettero joined Cannery Casino Resorts in 2005 as chief financial officer and was later appointed to chief operating officer in January 2008. Prior to joining Cannery, Lettero served as senior vice president and chief financial officer at Aladdin Gaming LLC and as executive vice president and chief financial officer at the Stratosphere Corp. He has also held senior management positions at Palace Casinos Inc. in Biloxi, Miss.; H.P. Casino Management in Golden, Colo.; as well as MGM Grand Hotel & Casino, Main Street Station, Mirage Resorts, Sands Hotel and Casino and Caesars Palace.