Hollywood Casino Shreveport warns of bankruptcy filing if consent solicitation fails

By Carlise Newman

Chicago, Feb. 27 - The merger completion date between Hollywood Casino Corp. and Penn National Gaming, Inc. looms on March 3 but if a Feb. 24 consent solicitation is not successful Hollywood Casino Shreveport will not be able to pay for the change of control offer it will be required to make - and could file for bankruptcy.

The current terms of Hollywood Casino Shreveport's first mortgage notes and senior secured notes require that when the merger between its parent Hollywood Casino Corp. and Penn National is completed it must make a change-of-control tender offer to buy the notes at 101% of their face amount plus accrued interest.

But Hollywood Casino Shreveport said in a filing with the Securities and Exchange Commission that if any holders of the notes accept the offer it would not have sufficient liquidity to fund the repurchase.

Penn National said it has funding available under its committed merger financing to fund the repurchase offer but has publicly stated that it does not intend to provide financing or credit support to Hollywood Casino Shreveport to make the repurchase offer nor will it allow any subsidiaries to do so.

Without funding from Penn National, Hollywood Casino Shreveport will not have the ability to repurchase any notes in the repurchase offer.

To address the problem, Penn National announced on Feb. 24 that it had begun soliciting consents from noteholders to waive the repurchase offer and related provisions.

If the noteholders do not give consent and Penn National does not allow or fund the repurchase offer, then Hollywood Casino Shreveport "would likely be required to file for protection under the federal bankruptcy code," according to the SEC filing.

If the merger goes ahead and noteholders either waive or do not exercise their change-of-control rights, then Hollywood Casino Shreveport management warned the company's existing cash and cash flow from operations may not be sufficient to fund its operating and capital needs for the next 24 months.

In that case, Hollywood Casino Shreveport would require additional capital contributions or other financial support from Penn National.

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