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Bailout bill's collapse reverberates in valley

30 Sep 2008

By Jennifer Robison

LAS VEGAS, Nevada -- Home builder Tom McCormick sees the credit crunch in the gun-shy consumers who refuse to pull the trigger on big purchases.

Alan Waxler, owner of a charter-transportation company, feels it in the extra effort he spends tracking down commercial loans for expansion.

And neither local entrepreneur said he expects business to get any easier following the Monday collapse of a bill in Congress designed to bail out banks flirting with insolvency.

"We're in such trouble," Waxler said upon hearing news of the failed bailout package. "The strongest economy on Earth is just going down the toilet."

Added McCormick, president of Astoria Homes: "There's so much fear among consumers. They just want to sit on the sidelines, and I'm not sure what will get them off the sidelines."

Local business owners weren't merely fretting over the potential for long-term malaise Monday. The city's biggest companies saw huge losses in capital wealth as jittery investors bailed on the country's stock markets.

Carnage on Wall Street -- the Dow Jones industrial average plunged 777 points after Congress spiked the rescue plan -- visited Las Vegas Boulevard as well, with share prices in local gaming operators taking major hits.

Wynn Resorts Ltd. fell $7.04, or 8.29 percent, on the Nasdaq National Market to close at $77.93, while Las Vegas Sands Corp. fell $5.15, or 13.46 percent, on the New York Stock Exchange to close at $33.10.

MGM Mirage, which is still attempting to close the last piece of financing for its $9.2 billion CityCenter development, fell $4.02, or 13.4 percent, on the New York Stock Exchange, to close at $25.99.

Boyd Gaming Corp. fell 86 cents, or 8.91 percent, on the New York Stock Exchange to close at $8.79.

Analysts said fears that credit markets will remain tight and concerns that consumers' discretionary spending will continue to slow helped push down gaming stocks.

"Gaming is a sector that nobody really wants to touch right now," Macquarie Capital gaming analyst Joel Simkins said. "There are some companies that are well-capitalized and will survive during this downturn. Some others are much more exposed and highly leveraged."

Investors also worry that operators might shelve expansion proposals because of lack of funding. Already, Boyd put its $4.8 billion Echelon project on hold for up to a year, while Pinnacle Entertainment and Harrah's have slowed progress on projects in Atlantic City, N.J., and Biloxi, Miss.

Boyd Gaming spokesman Rob Stillwell said the markets' reaction Monday reinforced the decision to delay Echelon.

"It's too early to know what the credit markets will look like a year from now," Stillwell said. "We've said three to four quarters, assuming the economy turns around."

Investors and analysts have expressed concern about CityCenter, which is still missing about $700 million in financing. CityCenter is expected to open in late 2009. MGM Mirage officials said previously the company was working to complete the last piece of its financial puzzle.

One source said the bailout delay has slowed financing for projects, but funding is still available.

One planned Strip project is throwing in the towel, though.

New York-based FX Real Estate and Entertainment said an Elvis-themed hotel-casino planned for 18 acres on the Strip is now "unlikely" due to the "dislocation and turbulence in the capital markets," according to a Monday filing with the Securities and Exchange Commission.

FX said it is reviewing its proposal for the development, which would stretch from Harmon Avenue to the Smith & Wollensky building just north of MGM Grand.

Scarce credit also hurts the smaller businesses that make up much of Southern Nevada's job base.

Waxler said he's looked for more than a year to move his business, AWG, to a larger site. AWG sits on roughly two acres near Tropicana Avenue and Valley View Boulevard, but expanding the company's 122-vehicle fleet would require at least five acres near McCarran International Airport. In his bid to grow, Waxler faces high land prices and expensive loans.

"It's practically impossible, because the amount of money needed now to be able to get into a new facility is monumental," Waxler said. "No one is loaning. Just trying to find reasonable money to borrow, and get into a deal, has become a job in and of itself."

The credit crunch brought one small reprieve to AWG: A project planned for the company's current site faces a questionable future thanks to funding issues. That's bought AWG a little more time to scour the city for an alternative location.

Consumers also want more time to make big-ticket financial decisions, and Monday's bailout defeat could take even more home buyers out of the game if Congress doesn't develop a different plan, McCormick said.

Astoria saw strong upticks in home purchases in July and August, McCormick said, only to watch sales fall off after a "cascading of bad news" starting with the Sept. 15 failure of investment house Lehman Brothers.

"We still have reasonable sales traffic within our neighborhoods, but everyone is saying, 'I don't want to decide on buying until I know what's going to happen,'" McCormick said.

With Astoria's construction loans scheduled to last well into 2009, Astoria shouldn't need to turn to banks for fresh infusions of cash anytime soon. Still, McCormick's concerned.

"I used to think we were working our way through this thing, and seeing a light at the end of the tunnel," he said. "But who ever thought all these big institutions were just going to go away? I don't want to be pessimistic. I'm extremely neutral, because there are too many variables out there right now."

Local bankers said they continued to make loans Monday.

"It's business as usual here," said Dallas Haun, chief executive officer and chairman of Nevada State Bank, the largest conventional commercial bank with a Nevada charter.

"We're still making loans," Haun said, adding, however, that the bank is giving extra scrutiny to some real-estate backed loans.

Similarly, Paul Kadavy, chief executive of Paramount Bank, said he has been busy extending lines of credit and loans that some older banks won't make because of their focus on existing problem loans.

Borrowers with good credit and proof of income can still qualify for traditional, 30-year, fixed-rate home mortgages, said Brock Davis, president of U.S. Express Mortgage.

"The (home buyers) are starting to come out of the woodwork," Davis said.

Davis said the House rejection of the bailout bill, at worse, "may drive rates up a little."

Yet, Davis said the federal government could restore the ability of banks to make new loans by purchasing delinquent residential mortgage loans that banks cannot sell today.

With those loans off their books, banks could make new mortgage loans and buyers of securitized loans would start buying new loan packages again, Davis said.

"You've restored the flow in mortgage-backed securities," Davis said.

While the bill was characterized as a bailout of Wall Street, "it really does affect Main Street," said Dale Gibbons, chief financial officer of Western Bancorporation, the holding company for Bank of Nevada.

It has been difficult for publicly held banks to raise capital by selling stock and other securities on Wall Street, Gibbons said. "So banks' ability to borrow and raise capital is curtailed and, as a result, they are not going to be able to make loans to local businesses," Gibbons said.

Arvin Menon, chief executive officer of Meadows Bank, mentioned another reason for the credit crunch.

Banks trying to fund a loan typically can borrow so-called federal funds overnight from other banks. Yet, Menon said bankers are reluctant to lend money to other banks overnight for fear that other banks may fail.

"We remain pretty optimistic that Washington is going to do what's right to stabilize the (investment markets) and restore the confidence of the public," Haun said. "Today, there is no confidence and the anxiety and fear level is high."

The package hasn't been sold properly to Congress and voters as a bailout for Wall Street, Gibbons said.

Martin Lobel, a Washington, D.C., lawyer and former legislative aide to the late Sen. William Proxmire, D-Wisc., said the middle class and politicians facing re-election were outraged at the prospect of bailing out Wall Street tycoons.

"They are going to have to recast it as a bailout of Main Street and not Wall Street," Lobel said. "And I don't know how they are going to do that."

Review-Journal reporters John Edwards, Arnold Knightly and Howard Stutz contributed to this article.

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