Odds On Racing - Harness Racing

Planned PA Track's Future Uncertain

March 28, 2010

With Lawrence County's proposed racetrack casino already on life support, some of the project's creditors want to force the racetrack developers out of bankruptcy reorganization and into a court-supervised liquidation, according to recent legal filings.

If granted, the move could kill the Valley View Downs racetrack project, which has been stalled for months for lack of financing. The move also could make available the state harness-racing and casino licenses associated with the project, possibly setting off a competition among other developers vying for the rights to build a lucrative new "racino."

Alternatively, the licenses could be transferred to new primary investors, who would agree to keep the casino in Lawrence County.

Or, the whole thing could be a tactical move, according to a spokesperson for the project.

"Wells Fargo represents a group that is junior in our capital structure and appears to be dissatisfied with the value of their position today. We view this as a negotiating tactic on their part to gain leverage," Centaur spokeswoman Susan Kilkenny said in an e-mailed statement.

Wells Fargo, the bank representing the second-lien lenders for primary project developer Centaur PA, said in court filings that Centaur PA is "in no position" to build the racetrack and casino, and the "cost of preserving the development of Valley View Downs as an option is consistently and materially eroding creditor recoveries."

The project, when first conceived, was expected to cost upward of $425 million. Wells Fargo is representing creditors who put up the $50 million that was used to secure a letter of credit for the state Gaming Control Board, collateral that would be needed for a board-issued $50 million casino license.

Centaur PA received a racing license from the state Harness Racing Commission; two years ago, the commission said it wanted live racing to start in Lawrence County by September, a date that is virtually impossible for Centaur to meet because no work has begun on the project.

Centaur has applied for a slots license from the state Gaming Board but the board is still waiting for more information before proceeding.

The bankruptcy conversion request was filed in the U.S. Bankruptcy Court's Delaware District on Thursday. Earlier in March, Centaur LLC -- the Indianapolis-based parent company of Valley View Downs -- filed for Chapter 11 bankruptcy protection. In October 2009, Centaur LLC announced that its two Pennsylvania divisions, Centaur PA and Valley View Downs LP, had likewise filed for bankruptcy. All three companies are related and involved in the development of the Lawrence County track.

With each filing, Centaur said the bankruptcy protection was a necessary move and would help preserve the project. Two weeks ago, Ms. Kilkenny said Centaur is going through "a corporate restructuring, but we remain fully committed to the project." The reorganization "will help clear the path to make the project a reality."

This week's court filing again calls that into question.
Chapter 11 of the bankruptcy code allows for a companywide debt reorganization; Chapter 7 dissolves a company and forces the sale of a debtor's nonexempt properties, with the sales proceeds going to creditors. A trustee would be appointed to oversee the liquidation.

Valley View and Centaur PA can object to the Chapter 7 motion; the deadline for objections is April 8. A hearing on the motion has been tentatively scheduled for April 15.

In its filing, Wells Fargo also said:

• The Valley View Downs project "cannot be rehabilitated," because Centaur is unable to secure the $176 million needed to build just the initial phase of the track.

• The debtors "have no operation and no business, [and] continue to incur losses and unnecessary professional fees."

Centaur PA doesn't have many assets to sell -- and it doesn't yet own the gaming license -- but the "letter of credit is fully cash collateralized," said John H. Knight, attorney representing Wells Fargo Bank. "It has $50 million in there. ... That's why we are trying to protect it."

Valley View was supposed to be built on a 250-acre site along Route 422, west of New Castle. A state Harness Racing Commission spokesman, Justin Fleming, was hesitant to say much Friday about the Valley View Downs situation.

"The commission would obviously have to be made aware of any change in Valley View Downs' status, and would review subsequent action," Mr. Fleming said.

If the track and casino licenses are jettisoned to a new company, it would be the second time that's happened in Western Pennsylvania. Pittsburgh's Rivers Casino was initially conceived as the Majestic Star, but Don Barden and other investors were unable to build it, forcing the casino license to be ceded to billionaire Neil Bluhm, Walton Street Capital and Pittsburgh Gaming Holdings.