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Howard Stutz

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Inside Gaming: Eldorado deal for MGM casinos makes company king of Reno

20 Jul 2015

By Howard Stutz
The Carano family, through its Eldorado Resorts Inc., has bet the house on Reno. The odds are seemingly tipped in their favor.

An announced $72.5 million acquisition of Circus Circus Hotel Casino - Reno and 50 percent of the Silver Legacy Resort Casino -- Eldorado already owned the other half -- from MGM Resorts International cemented the Caranos as the first family of downtown Reno.

The company already controls the flagship Eldorado Reno, giving it the three largest downtown resorts.

"This a great bet for Reno," said Reno-based gaming industry consultant Ken Adams.

Reno‘s casino market is on an upswing. Gaming revenue has increased more than 4 percent through May. Over the past nine months, Reno casinos have had just two monthly declines. The market is up 1.6 percent over the past 12 months.

Macquarie Securities gaming analyst Chad Beynon said gaming numbers are just a part of the Reno comeback. The average home price has risen from under $150,000 to over $250,000, unemployment levels have dropped from 14 percent to less than 7 percent and Tesla Motors‘ gigafactory is under construction.

New direct airline flights from New York, London, and Guadalajara, Mexico, to the Reno-Tahoe International Airport are bringing a wave of customers to Northern Nevada.

"Bottom line, Reno is a healthy market and Eldorado will now become the biggest player," Beynon said.

Eldorado Resorts, which is more than 50 percent owned by the Carano family and its partners, was the only logical choice to acquire MGM‘s Reno holdings.

Family patriarch Don Carano opened the Eldorado in 1973. The family partnered with Circus Circus Enterprises Inc. to build the Silver Legacy in 1995. Circus Circus opened its Reno resort in 1978. The three casinos are connected by enclosed skywalks and anchor the northern end of Virginia Street.

It‘s no secret MGM is unloading noncore casinos. Earlier this year, the company sold Railroad Pass in Henderson and the Gold Strike in Jean. MGM acquired the Reno pieces through its 2005 buyout of Circus Circus successor Mandalay Resort Group.

Adams said the sales price was a bargain. The 1,711-room Silver Legacy alone cost $350 million to build 20 years ago.

"The Atlantis and the Peppermill spent more on building spas combined than the value of this deal," Adams said. "The Peppermill‘s last expansion alone cost $300 million. The Caranos understand the Reno market. They know these properties."

In the past 10 months, Eldorado Resorts has earned attention from the investment community.

The company was formed in September after privately held Eldorado bought MTR Gaming Group and became a Nasdaq-listed company. The merger gave Eldorado, which already had its Reno holdings and the Eldorado casino in Shreveport, La., three racetrack casinos Ohio, West Virginia and Pennsylvania.

In conjunction with the all-cash deal with MGM, Eldorado announced a $60 million stock offering and $375 million debt offering. Eldorado is also assuming $60 million in debt through the transaction.

Deutsche Bank gaming analyst Andrew Zarnett said the restructuring of Eldorado‘s capital structure connects with the acquisition. The Silver Legacy and Circus Circus Reno have seen little in the way of capital improvements.

"The transaction makes strategic sense, as the performance of both assets could benefit from cost and revenue synergies," Zarnett told investors. "(The financing) will provide management with enough flexibility to focus its attention solely on improving operations."

Eldorado has an agreement with MGM to use the Circus Circus name, but a company executive appearing before the Gaming Control Board last week hinted at a name change.

With the transaction, which needs regulatory approval, Eldorado will operate seven resorts in five markets with 10,850 slot machines, 310 table games, 4,850 hotel rooms and 8,600 employees.

Beynon told investors the deal and refinancing transitions Eldorado into "a strong regional gaming free-cash flow story with growth."

The mining-themed Silver Legacy is Reno‘s tallest resort. The property went through Chapter 11 bankruptcy in 2012 but emerged with the Caranos‘ stake intact. Analysts clearly see potential when operating the three resorts together.

"The Silver Legacy was built with a vision for a different time," Adams said. "They have a good strategy that will eliminate costs and maximize rooms."

In an interview with the Reno Gazette-Journal, Eldorado CEO Gary Carano said his father, who now operates the Ferrari-Carano Vineyards and Winery in Northern California, always dreamed of growing the gaming company.

The deal with MGM grants him his wish.

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