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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (33729)	10/10/1998 2:23:00 PM
From: Thomas M.	Read Replies (1) \| Respond to of 132070

forbes.com Other People's Money By Seth Lubove LOOKING DOWN LAS VEGAS' bustling Strip, you wouldn't know that casino stocks were in the tank long before the latest market turmoil, with Mirage Resorts down from $30.38 to $17.75, and Circus Circus from $26.50 to $10. Construction cranes dot the sky, adding ever more rooms, slots and restaurants in an already glutted market. What's going on here? The answer is that the low stock prices haven't slowed expansion because the casino operators can currently get all the cheap capital they want by tapping yield-hungry mutual funds and other investing institutions. At a time when Treasury yields have sunk to 30-year lows, mutual funds, hedge funds, insurance companies and other big investors are gobbling up anything that offers a few percentage points in higher yield and relative safety. Much of the new money is in junk loans rather than in junk bonds. What's the difference? Unlike a bond, which is issued directly by a company and underwritten by an investment bank, junk loans are syndicated loans that are divvied up among nonbank investors as well as traditional banks. In the first half of this year alone the market absorbed $140 billion in junk loans, compared with about $111 billion in junk bonds. This compares with $194 billion in junk loans for all of 1997. Richard Goeglein, president and chief executive of Aladdin Gaming Holdings LLC, was prepared to float more than $400 million in costly junk bonds last summer to fund the construction of the new Aladdin Hotel & Casino on the Strip. But his investment bankers, Mark Sunshine and Daniel Alpert of Westwood Capital in New York, ditched those plans and rang up Bank of Nova Scotia and Merrill Lynch Capital Corp. The bankers arranged a $410 million leveraged loan syndication for the $826.2 million project (the rest of the funding comes from joint venture partners, equity and a smaller junk bond offering). By going the junk loan route, Aladdin needed to pay only a little over a 10% blended cost of financing, versus nearly 12% for a Strip hotel that used almost all junk bonds, as well as lower underwriting fees. Whereas junk bonds can be sold to the public or to junk bond funds, junk loans can tap a fresh market: so-called prime rate mutual funds, which are mutual funds that buy leveraged loan participations. While the interest coupons are slightly lower than with junk bonds, the loans are floating-rate debt that's adjusted for interest rate fluctuations and, because it's senior secured bank debt, is higher in the pecking order in a default. Which is why prime rate funds can buy them. Howard Tiffen, manager of Pilgrim America's Prime Rate Trust, says that in exchange for giving up from 1% to 3% of yield compared with a junk bond, he gets up to an 85% recovery in a default, in contrast to about 35% if a junk bond tanks. This all started when banks decided to cash in on Wall Street's junk bond business. Money-center banks could make the high interest loans and then peddle them to smaller banks and mutual funds, thus cutting out the traditional junk bond underwriters. Unwilling to miss out on the party, a number of Wall Street houses, Merrill among them, got into the junk loan business themselves. As with junk bonds, there's now a thriving secondary market in the loan pieces. But debt is debt and leverage is leverage, and someone is going to get burned occasionally. The Pilgrim fund owns loans from the wobbly Boston Chicken, as well as Nextel Communications and something called Murray's Discount Auto Parts. Defenders of these loans argue that they are safer than junk bonds because as bank debt they outrank junk bonds in any reorganization. Listen to Michael Rushmore, managing director of loan research for BancAmerica Securities Inc., whose parent company is the fourth-largest arranger of leveraged loans: "The senior bank loan as an asset class has provided a wonderful yield on a risk-adjusted basis. We'll see more money flowing in from institutions and retail investors." Recent black eyes, such as Morgan Stanley's inability to unload on investors $1.7 billion in loans to troubled Sunbeam Corp., had more to do with Sunbeam's problems than with the leveraged-loan business. And so the party rolls on. Michael Mona, a Las Vegas contractor who is building his first casino, is now hustling up several investors to back a $55 million to $60 million take-out loan for construction of a gambling hall and restaurant addition to an existing hotel and RV park. One of these days the music will stop, and many of these prime rate loans won't look very prime. What happens if some of these new casino hotels fail to earn enough to cover the interest? The owners can probably work a restructuring deal, but the buyers of the loans will take a haircut and it will be scant comfort to them that junk bondholders may take a more severe haircut. Jason Ader, Bear, Stearns' respected gambling analyst, shakes his head gloomily. "The ability now for developers to access this high-yield syndicated debt," he says, "has created more rooms and more casino space in a market that just doesn't need it."

To: Knighty Tin who wrote (33729)	10/10/1998 2:35:00 PM
From: Merritt	Read Replies (1) \| Respond to of 132070

Mike: Speaking of ventriloquists, have you been working with Barton Biggs?<G> Message 5979411 Merritt

To: Knighty Tin who wrote (33729)	10/10/1998 4:46:00 PM
From: Amir Shalit	Read Replies (1) \| Respond to of 132070

Mike, since you like horse racing, what's your opinion of a Video on Demand application that lets you watch earlier races (say you have about 20 different stations) prior to placing your bets. I really don't see the point but we have customers that are building this type of application. BTW, the technology involved is very complex. It requires an ATM network, video streaming equipment and disk arrays. Amir