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Inside Gaming: Atlantic City to pay Borgata $63 million in tax refunds -- but how?

15 Jul 2015

By Howard Stutz
A property tax refund for Boyd Gaming Corp. could spell additional trouble for financially challenged Atlantic City.

A New Jersey appellate court this month upheld a lower court reassessment of how the city taxed the market-leading Borgata Hotel Casino and Spa, awarding Boyd $63 million in property tax refunds covering 2009 and 2010.

The figure comes on top of $88 million in tax refunds Atlantic City agreed to pay to Boyd under a June 2014 settlement covering 2011 through 2013.

For those keeping score, that's $151 million coming to Boyd Gaming, which operates the Borgata and owns the resort in a 50-50 partnership with MGM Resorts International.

It may be a while, however, before Las Vegas-based Boyd sees the money.

Struggling Atlantic City has to first figure out how to pay the casino operator.

"The enormous amount of refunds that the city must pay back on successful tax appeals is simply unsustainable," Mayor Don Guardian told The Associated Press in an e-mailed statement. "We continue to make cuts and run city government more efficiently, but it is the taxpayers who will suffer in the long run without tax stabilization."

Boyd Gaming spokesman David Strow said the company would address the tax refund when it releases its second quarter earnings on July 23.

Back in February, Boyd CEO Keith Smith said the company had expected to receive payment of the 2014 settlement by the end of last year. It didn't happen.

"There (are) provisions in the agreement that extend it, and so the agreement's been extended," Smith said on the company's fourth quarter conference call. "We're still, at this point, fully expecting to get the $88 million, and that's about all we know right now."

Deutsche Bank gaming analyst Andrew Zarnett told investors said the $151 million in total refunds were a "material positive" for Borgata. He thought the company might look to refinance Borgata's $103 million debt, which is due in 2018.

However, Zarnett added he was "concerned with regards to how the city will back the refund, given the current state of public finances and the solvency of Atlantic City itself."

Borgata is one of the few bright spots in Atlantic City, a market that saw four casinos close last year and has seen gaming revenue decline some 44 percent since hitting a peak of $5.2 billion in 2006.

Atlantic City was once home to the only casinos on the East Coast. But gaming expansion into the northeast - Maryland, Pennsylvania, Delaware and Massachusetts - cut into the market's customer base.

A second casino in Philadelphia, MGM's $1.2 billion project in Maryland, and two upstate New York casinos are all expected to open by 2017, further slicing into Atlantic City's business.

The closed casinos reduced Atlantic City's tax structure. Gov. Chris Christie, in January, appointed an emergency manager to devise a plan to help Atlantic City resolve some its financial issues.

Borgata remains the city's top revenue producer. Through June, Borgata has collected $343.7 million in gaming revenue, an increase of almost 5 percent from a year ago. Borgata accounts for more than one-fourth of the seven-casino market's overall total.

Borgata CEO Tom Balance told the Press of Atlantic City the town wouldn't be in this situation if the resort had been properly assessed. The matter took years to unravel, running up costly legal fees.

"We didn't want to be involved in this at all, but the city overcharged us," Balance said.

In a statement, Balance said he was appreciative the court affirmed a judge's ruling that Borgata had been "unlawfully overcharged."

What happens next is unclear. Boyd Gaming, however, is on an upswing.

The company's New York Stock Exchange-listed share price is up more than 35 percent from a year ago and hit a 52-week high of $16.88 on the New York Stock Exchange Tuesday.

Last month, Credit Suisse gaming analyst Joel Simkins raised his target price for Boyd to $18 per share, based on the company's improving business in the Las Vegas locals market.

Borgata continues to outshine the rest of Atlantic City, adding to Boyd's resurgence.

Zarnett said refinancing the debt would help the resort prepare "for the next wave of supply," which includes a possible expansion of gaming to other New Jersey markets.

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