Bank of Nova Scotia, Merrill Lynch & Co., and CIBC Oppenheimer Corp. are set to begin syndication Friday of a $410 million loan to back construction of a new Aladdin hotel and casino in Las Vegas.
The financing comes to market just two months after Goldman, Sachs & Co. and Bear, Stearns & Co. completed a $923 million deal to back construction of the highly controversial Venetian Casino Resort, which Sheldon Adelson is building on the site of the former Sands Hotel and Casino.
Though snapped up by investors, the Venetian deal was done at a high cost to the borrowers. But bankers do not expect Aladdin's developers to have the same problem.
"It says something in terms of competitive advantage that we are financing this project with a cost of funds that is more competitive than that of other development projects recently financed, and a lot closer to other competitors on the strip," said Daniel Alpert, a managing director at Westwood Capital, which was Aladdin's financial adviser.
The developers are able to finance this project because of the level of credit support and the quality of the management team, Mr. Alpert said.
Bank of Nova Scotia is administrative agent on the loan; Merrill Lynch is a syndication agent; and CIBC Oppenheimer is documentation agent.
Sources familiar with the deal said the loan includes an A-tranche that is a $165 million term loan priced at 300 basis points over the London interbank offered rate. Six months after construction is completed, the tranche converts to a debt-to-cash-flow grid that will determine pricing in a range from Libor plus 150 to 275 basis points.
There are also a $100 million B-tranche priced at 350 basis points over Libor and a $145 million C-tranche priced at Libor plus 400. The loan is expected to close at the end of the month. The B and C tranches have two- year call protection and prepayment penalties.
Merrill Lynch and Credit Suisse First Boston will co-lead a $110 million issue of holding company notes, which are to price at the end of the month. CIBC Oppenheimer and Scotia Capital Markets will co-manage the deal.
The new Aladdin casino will be erected on the site of the old one, which was closed Nov. 25. The old Aladdin, a 31-year-old landmark on the Las Vegas Strip, is scheduled for demolition late in the first quarter.
New York-based real estate developer Jack Sommer and his Sigman Sommer Family Trust, which has owned the Aladdin since 1993, has a 75% stake in the Aladdin Hotel and Casino. British gaming giant London Clubs International PLC, which controls almost half of Britain's gaming market, owns the other 25% of the project.
London Clubs is providing $50 million in cash equity for the project, in addition to signing a "keep-well" agreement, which promises to inject additional capital in the event that operations do not go as planned. The company is signing a completion guarantee with Sommer. The contributed land value is about $135 million.
Plans for redevelopment of the 35-acre site, to be completed in late 1999, include a 2,600-room hotel, casino, and shopping center with an "Arabian Nights" theme. The project also includes a $250 million joint venture with Planet Hollywood Inc. to build a 1,000-room music-themed resort, which will be financed and developed separately.
Construction of the $230 million shopping mall, a 450,000-square-foot facility, will begin six months after the hotel.
The old Aladdin's 7,000-seat Theatre for the Performing Arts, one of the largest entertainment venues in the country, will not be demolished. It will close for renovation during construction of the casino.
Market experts said the Aladdin project may face some challenges, given that there are already five other casinos under construction on the Strip. But they pointed out that among the projects built in Las Vegas this decade, only one-the Stratosphere-was unsuccessful. It is not sited on the Strip, however, and was opened uncompleted.
"Seasoned gaming lenders are going to look at this with a very diligent perspective as to what the market demand forces are," said one gaming lender. "At the end of the day, it (will) get done and will probably be successful."
Mr. Alpert, the Aladdin adviser, said that it is focusing on the traditional gaming market at the upper-middle level and the lower-premium and ultra-premium levels.
"We believe that a focus of our business on those market components is different than the other projects coming out of the ground," he said. Targeting that market will be a competitive advantage that will enable the Aladdin to differentiate itself from other projects under construction, he added.
