Pinnacle planning to fund development with existing capital until credit markets improve

By Jennifer Lanning Drey

Portland, Ore., Feb. 26 - Pinnacle Entertainment, Inc. intends to wait until interest rates improve for corporate borrowers before seeking any capital in the credit markets, Daniel R. Lee, Pinnacle's chief executive officer, said Tuesday during the company's fourth-quarter earnings conference call.

"You have kind of an institutional issue where there's not enough capacity in the debt market to absorb the deals, and that has spread to all casino borrowers," he said during the call.

Lee said Pinnacle has enough "inexpensive capital" to fund its current development activities, including the completion of River City casino in St. Louis and the refurbishing of guest rooms at its Reno, Nev., casino.

At Dec. 31, Pinnacle's liquidity included $191 million of cash and cash equivalents, and the company expects to receive $36.75 million of insurance proceeds within the next month. Pinnacle also generates about $100 million of cash flow from operations annually.

Pinnacle has a $625 million revolving credit facility, of which about $161 million is utilized, including $50 million borrowed in late 2007, $90 million borrowed in early 2008 and $21 million of letters of credit issued.

Use of the credit facility is restricted to $350 million by the company's indenture governing its 8¾% senior subordinated notes, which become callable in October 2008. The company hopes to refinance bonds and gain full access to the credit facility.

"Hopefully the overhang in the market clears and we're able to do it sometime in the next six or nine months less expensively," Lee said.

If the credit markets have not improved by the time Pinnacle is ready to seek financing for the company's Atlantic City project in late 2009, the company will revise its plans for moving forward with the project, Lee said, although he doesn't think a change of plans is likely.

"We do think credit markets will improve before we need to build. We don't have a gun to our heads. If we have wait a year until they improve, that's OK. Demand's not going anywhere," he said.

"On the other hand, if the credit markets don't improve, there will be some serious issues in the economy and I think the question of whether we build Atlantic City is kind of a moot point."

Pinnacle reported a fourth-quarter GAAP net loss of $19.2 million, compared with a GAAP net loss of $5.0 million in the final quarter of 2006. The company said the change represents increased pre-opening and development expenses related to development activities primarily related to its Lumiere Place Casino in St. Louis.

Pinnacle Entertainment is a Las Vegas-based developer, owner and operator of casinos and related hospitality and entertainment facilities.

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