Fitch: Penn/Cordish JV Credit Negative for Local Rivals

Thu Apr 17, 2014 9:39am EDT

(The following statement was released by the rating agency) NEW YORK, April 17 (Fitch) The announced joint venture between Penn National Gaming and Cordish in Upstate New York is credit negative for nearby casino operators as the additional competition it creates would draw profit away from them, Fitch Ratings says. Neighboring casino operators include Borgata in Atlantic City, Empire City in Yonkers, NY and Sands Bethlehem in eastern Pennsylvania. Penn and Cordish's 50/50 JV casino in Orange County is budgeted at USD750m, at the high end of what we thought would be proposed by the applicants for New York casino licenses. The casino's proposed location is in the village of South Blooming Grove, which is about 30 minutes from New Jersey's northern border. The proposed casino would also have a sizeable local population to draw on with nearly 400,000 residents living in Orange County. Assuming a 15% return on investment and a 25% margin, the casino could generate approximately USD450m in gaming revenues. Some of this revenue will be cannibalized from casinos in Atlantic City and eastern Pennsylvania and racetrack casinos in New York. The JV's announcement follows EPR Properties' announcement one month ago of its USD750m proposal in New York's Catskills region. New York's Gaming Facility Locations Board expects to award four gaming licenses in Upstate New York by early fall and applications are due by the end of June. There are three designated regions to receive casino licenses with the Catskills/Hudson Valley region likely to receive two. The board expects to establish minimum investment thresholds by early May. To date, several potential applicants expressed interest in the Catskills/Hudson Valley region with most aimed at the Catskills area in Sullivan County. Interested parties include EPR (in partnership with Empire Resorts) and consortiums involving the Mohegan and Mashantucket Pequot tribes. A local approval granted by the host municipality's legislature is required to qualify for a license. This is different from Massachusetts, where local referendums were required making the licensing process more volatile in Fitch's opinion. The Board will also assess local impact when granting licenses but that consideration carries only a 20% weight compared to 80% given to economic and labor related considerations. Contact: Alex Bumazhny Director Corporates +1 212 908 9179 1 State Street Plaza New York, NY Kellie Geressy-Nilsen Senior Director FitchWire +1-212-908-9123 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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