conditions of the DIP facility; (ii) to improve profitability; (iii) to generate sufficient cash flow from operations to satisfy liabilities as they come due; and (iv) to obtain additional financing to meet the Company’s future obligations
As further described in Note 6, the Company has long-term obligations. These obligations have been classified as a current liability as a result of the filing for Chapter 11 bankruptcy protection under the United States Bankruptcy Code.
The preparation of the consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles requires management of the Company to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period.
Significant items subject to such estimates and assumptions include the carrying amount of property, building, and equipment, valuation allowances for receivables, tax obligations and certain other accrued liabilities. Actual results could differ from those estimates.
Greektown Holdings recognizes as Casino revenues the net win from gaming activities, which is the difference between gaming wins and losses. Revenues from food and beverage and hotel operations are recognized at the time of sale or upon the provision of service.
The retail value of food, beverage, and other complimentary items furnished to customers without charge is included in revenues and then deducted as promotional allowances. The costs of providing such promotional allowances for the years ended December 31, 2009, 2008, and 2007, were as follows (in thousands):
The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Certificates of deposit represent cash deposits with maturities in excess of three months.
Accounts receivable—gaming consists primarily of gaming markers issued to casino patrons on the gaming floor. A marker is a voucher for a specified amount of dollars negotiable solely within Greektown Casino. Markers are recorded at issued value and do not bear interest. The allowance for doubtful accounts is Greektown Casino’s best estimate of the amount of probable credit losses in Greektown Casino’s existing accounts receivable.
Notes receivable represents a balance owed from a patron, which is evidenced by an unsecured promissory note with a principal balance of $2,000,000. The note matured on March 31, 2009 and
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
bears interest at a rate of 6% per annum, of which $460,000, $370,000, and $250,000 was earned through December 31, 2009, 2008, and 2007, respectively. The Company served a collection notice related to this note and expects full payment of the principal amount.
Greektown Casino determines the allowance based on historical write-off experience and review of returned gaming markers, past-due balances, and individual collection analysis. Account balances are charged off against the allowance after all reasonable means of collection have been exhausted and the potential for recovery is considered remote.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash and equivalents, certificates of deposit and accounts receivable. We control our exposure to credit risk associated with these instruments by (i) maintaining strict controls and security procedures to safeguard cash balances on our gaming floors and in controlled areas in our facility; and (ii) maintaining strict policies over credit extension that include credit evaluations, credit limits and monitoring procedures.
Advertising Expense
The Company expenses costs associated with advertising and promotion as incurred. Advertising and promotion expense was approximately $8,310,000, $4,620,000, and $5,541,000 for the years ended December 31, 2009, 2008, and 2007, respectively.
Prepaid Expenses
Prepaid expenses consist of payments made for items to be expensed over future periods. At December 31, 2009 and 2008, prepaid expenses included approximately $12,211,000 and $12,333,000, respectively, related to the annual gaming license and municipal service fees that will be expensed in subsequent periods.
Inventories
Inventories, consisting of food, beverage, and gift shop items, are stated at the lower of cost or market. Cost is determined by the first-in, first-out method.
Property, Building, and Equipment
Property, building, and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets.
Expenditures for repairs and maintenance are charged to expense as incurred and approximated $725,000, $584,000, and $888,000 for the years ended December 31, 2009, 2008, and 2007, respectively. Depreciation and amortization expense includes amortization of assets recorded under capital leases.
Reserve for Club Greektown
Greektown Casino sponsors a players club (“Club Greektown”) for its repeat customers. Members of the club earn points for playing Greektown Casino’s electronic video and table games. Club Greektown members may redeem points for cash. Club Greektown members may also earn special coupons or awards as determined by Greektown Casino.
Greektown Casino expenses the cash value of points earned by club members and recognizes a related liability for any unredeemed points. Greektown Casino has adopted the provisions of the
F-10
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Revenue Recognitiontopic of the ASC applicable to instances where consideration is given by a vendor to a customer. Accordingly, Greektown Casino has recognized the cash value of points earned as a direct reduction in casino revenue. For the years ended December 31, 2009, 2008, and 2007, this reduction totaled $6,727,000, $6,459,000, and $7,151,000, respectively, and is deducted from casino revenue in the accompanying consolidated statement of operations.
Concentrations of Risk
As of December 31, 2009, approximately 1,700 of the Company’s employees were covered by collective bargaining agreements, including a majority of the Company’s hourly staff.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, certificates of deposit, accounts receivable, and accounts payable approximates fair value because of the short-term maturity of these instruments. The fair value of long-term debt, lawsuit settlement obligation, and long-term payables approximates their carrying value, as determined by the Company, using available market information.
Financing Fees
The Company has incurred certain financing costs in order to secure financing for its Casino and the Expanded Complex. These costs were capitalized and are being amortized over the term of the respective financing agreements.
Capitalized financing fees, net of amortization, totaled $9,712,000 and $14,105,000 at December 31, 2009 and 2008, respectively. The amortization of these fees was $12,923,000, $8,464,000, and $3,378,000 for the years ended December 31, 2009, 2008, and 2007, respectively.
Income and Other Taxes
A provision for federal income taxes is not recorded because, as a limited liability company, taxable income or loss is allocated to the members based on their respective ownership percentages in accordance with the Member Agreement (as defined elsewhere herein). On July 12, 2007, the Michigan legislature enacted the Michigan Business Tax (MBT) which is considered an income tax under the provisions of the Income Taxes topic of the ASC. The MBT has a gross receipts tax and an income tax component. Due to these changes, the enactment has resulted in the recording of both a deferred tax asset and a deferred tax liability related to the gross receipts component. The deferred tax asset was approximately $1.2 million and $1.2 million at December 31, 2009 and 2008, respectively, and the deferred tax liability was $3.6 million and $3.9 million, respectively. These amounts are presented net as a long term deferred tax liability of approximately $2.4 million and $2.7 million at December 31, 2009 and 2008, respectively. The deferred tax asset is the result of future deductions allowed under the enactment provisions of the new law for the 2015 to 2029 tax years, whereas the deferred tax liability is the result of the enactment of the law and the liability resulting from the temporary differences related to capital acquisitions reversing in future periods related to the gross receipts calculation. In addition, the Company has a deferred tax asset of approximately $8 million and approximately $8.2 million at December 31, 2009 and 2008, respectively, related to the tax effect of timing differences between book and tax expense related to the income tax component. Based on historical losses in Michigan and the uncertainty of the Company’s ability to utilize them, a full valuation allowance has been provided against these deferred tax assets at December 31, 2009 and 2008. During the years ended December 31, 2009 and 2008, the Company recorded a current provision for MBT of $1,117,000 and $1,553,000, respectively, and a deferred benefit of $305,000 and a deferred provision of $2,675,000, respectively.
F-11
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Impairment or Disposal of Long-lived Assets
The Company accounts for long-lived assets in accordance with theProperty, Plant andEquipment topic of the ASC, which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset.
If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.
Intangible Assets
The Revised Development Agreement gives rise to an identifiable intangible asset that has been determined to have an indefinite life.
The Company complies with the provisions of theIntangible Assets-Goodwill and Other topic of the ASC, which provides guidance on how identifiable intangible assets should be accounted for upon acquisition and subsequent to their initial financial statement recognition. This topic requires that identifiable intangible assets with indefinite lives be capitalized and tested for impairment at least annually by comparing the fair values of those assets with their recorded amounts.
Accordingly, the Company performs its impairment test as of October 1 of each year by comparing their estimated fair value to the related carrying value as of that date.
Interest Costs
The interest costs associated with debt incurred in connection with the construction of long-lived assets are capitalized until the project is complete, at which time the interest is amortized over the life of the related capitalized assets. The Company uses either the interest rate on the borrowing specific to the capital expenditure or a weighted-average interest rate on outstanding indebtedness. Interest costs capitalized were $2,086,000, $6,987,000, and $7,199,000 for the years ended December 31, 2009, 2008, and 2007, respectively, in connection with the Expanded Complex.
Reclassification
Certain amounts related to the consulting company success fees have been reclassified as “operating expenses” (previously classified as “other expense”) in the consolidated statement of operations for the year ended December 31, 2009.
Recently Issued Accounting Pronouncements
Effective July 1, 2009, the Financial Accounting Standards Board (the “FASB”) issued theFASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (the “ASC”), and the ASC became the single official source of authoritative, nongovernmental GAAP. The historical GAAP hierarchy was eliminated and the ASC became the only level of authoritative GAAP, other than guidance issued by the SEC. All other literature became non-authoritative. The ASC is effective for financial statements issued for interim and annual periods ending after September 15, 2009. As the ASC was not intended to change or alter existing GAAP, it will not have any impact on the Company’s consolidated financial position, results of operations and cash flows.
In September 2006, the FASB issued a new standard which defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands the disclosure requirements regarding fair value measurements. The standard does not introduce new requirements mandating the use of fair value.
The new standard defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
F-12
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
date.” The definition is based on an exit price rather than an entry price, regardless of whether the entity plans to hold or sell the asset.
The topic also establishes presentation and disclosure requirements in order to facilitate comparisons between entities choosing different measurement attributes for similar types of assets and liabilities. This standard does not affect existing accounting requirements for certain assets and liabilities to be carried at fair value.
The Company adopted this standard as it relates to financial assets and liabilities on January 1, 2008, and as it relates to non-financial assets and liabilities on January 1, 2009. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In March 2008, the FASB issued a new pronouncement which seeks to enhance disclosure about how and why a company uses derivative and hedging activities, how derivative instruments and related hedged items are accounted for (and the interpretations of that topic) and how derivatives and hedging activities affect a company’s financial position, financial performance and cash flows. This standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In May 2009, the FASB issued a new standard regarding subsequent events which introduces the concept of financial statements being available to be issued. This standard is effective for fiscal years and interim periods beginning after June 15, 2009. During the second quarter of 2009, the Company adopted the provisions of theSubsequent Events topic of the ASC, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. The adoption of the topic did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
3. Petition for Relief Under Chapter 11
On May 29, 2008 (the “Petition Date”), the Company filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court, Eastern District of Michigan (the “Bankruptcy Court”). The Company sought protection under Chapter 11 of the United States Bankruptcy Code to allow the Company time to secure adequate funding to complete the Expanded Complex and to protect itself from a forced sale of Greektown Casino by the Michigan Gaming Control Board as provided in the Revised Development Agreement. The Restructuring Proceedings were initiated in response to the Company not meeting the loan covenants put in place by both the lenders and the Michigan Gaming Control Board. Curing these covenants would have required the equity owners of the Company to contribute capital far in excess of their financial strength. As a result, the Company sought protection under Chapter 11 to stay the potential forced sale, and allow it to obtain the financing required to preserve its going concern value for the benefit of all parties involved.
On June 9, 2008, Holdings and the Company entered into a $150 million DIP financing facility in order to finance the remainder of the Expanded Complex and provide funding for working capital and reorganization expenses. The DIP financing facility was amended and restated on February 20, 2009 to provide up to an additional $46 million in two delayed draw term loans and effectuate certain other modifications (see Note 6).
On August 26, 2009, the Debtors, together with their existing pre and post-petition lenders (the Debtor Plan Proponents), filed the Second Amended Joint Plans of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (the “Debtor Plan”) and the Second Amended Disclosure Statement for Joint Plans of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (the “Disclosure Statement”). On September 3, 2009, the Bankruptcy Court approved the Disclosure Statement. On November 2, 2009, certain of the holders of the Senior
F-13
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Notes due 2013 issued by Holdings and Holdings II, together with certain of the pre-petition secured lenders (the “Noteholder Plan Proponents”) filed a alternative plan of reorganization with the Bankruptcy Court (the “Noteholder Plan”). The Noteholder Plan was confirmed by the Bankruptcy Court on January 22, 2010, and, pursuant to the terms of the Noteholder Plan, must become effective, upon the occurrence of the conditions precedent to such effectiveness, on or before June 30, 2010. Conditions precedent to the occurrence of the effective date of the Noteholder Plan include receipt from the MGCB and the City of Detroit of all required regulatory approvals and consents. Upon the effective date of the Noteholder Plan, among other things, the DIP Lenders and the Pre-Petition Secured Lenders shall be paid, and certain of the Noteholder Plan Proponents shall own the equity of the Reorganized Greektown. Pursuant to a stipulation entered into among the Noteholder Plan Proponents and the Debtor Plan Proponents, the Debtor Plan is currently being held in abeyance pending the occurrence of the effective date of the Noteholder Plan.
On December 29, 2009, the Company entered into a new $210 million DIP facility, which refinanced the amended and restated DIP facility dated February 20, 2009 and provided funding for working capital and the costs associated with the Company’s reorganization (see Note 6).
Under Chapter 11, certain claims against the Company in existence prior to the filing of the petitions for relief under the federal bankruptcy laws are stayed while the Company continues business operations as DIP. These claims are reflected in the consolidated balance sheet as “pre-petition payables” and “pre-petition amounts due to related parties.” These amounts represent the Company’s estimate of known or potential prepetition claims and related post-petition interest to be resolved in connection with the Restructuring Proceedings. Such claims remain subject to future adjustments. Future adjustments may result from (i) negotiations; (ii) actions of the Bankruptcy Court, or the actions of the Debtors or Reorganized Debtors pursuant to the Noteholder Plan, assuming the Noteholder Plan becomes effective; (iii) further developments with respect to disputed claims; (iv) rejection of executory contracts; (v) the determination as to the value of any collateral securing claims; (vi) proofs of claim; or (vii) other events. Payment terms for these claims will be established in connection with the Restructuring Proceedings, including in connection with the Noteholder Plan, if it becomes effective.
Chapter 11 related reorganization expenses in the consolidated statement of operations consist of legal and financial advisory fees resulting from or related to the bankruptcy proceedings.
4. Property, Building, and Equipment
Property, building, and equipment and related depreciable lives as of December 31, 2009 and 2008, were as follows (in thousands):
| | | | | | | | | |
| | December 31 | | Depreciable
Lives | |
| |
| | |
| | 2009 | | 2008 | | |
| |
| |
| |
| |
Land | | $ | 104,391 | | $ | 104,391 | | — | |
Gaming building and improvements | | | 151,506 | | | 136,865 | | 3–35 years | |
Gaming equipment and furnishings | | | 62,983 | | | 59,772 | | 3–5 years | |
Nongaming buildings and improvements | | | 253,913 | | | 70,968 | | 39 years | |
Nongaming office furniture and equipment | | | 43,914 | | | 28,208 | | 5–7 years | |
Construction in progress | | | 8,560 | | | 183,910 | | — | |
| |
|
| |
|
| | | |
| | | 625,267 | | | 584,114 | | | |
Less accumulated depreciation and amortization | | | 152,996 | | | 135,529 | | | |
| |
|
| |
|
| | | |
Property, building, and equipment, net | | $ | 472,271 | | $ | 448,585 | | | |
| |
|
| |
|
| | | |
F-14
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Certain costs incurred relate to the development and construction of the Expanded Complex, in accordance with the terms of the Revised Development Agreement. These costs are capitalized, and depreciation commenced in February 2009, when the Expanded Complex opened.
5. Casino Development Rights and Impairment
In accordance with the Revised Development Agreement, Greektown Casino is authorized to own and operate on a permanent basis, within certain boundaries in the City, a casino complex containing specified amenities. Under the terms of the Revised Development Agreement:
| | |
| (a) | Greektown Casino agreed to pay the City $44 million in installment payments (the “Installment Payments”), and contributed certain investment assets. |
| | |
| (b) | Greektown Casino was required to maintain standby letters of credit, totaling $49,360,000, to secure principal and interest payments on certain bonds issued by the Economic Development Corporation of the City (the “EDC”); however, these letters of credit were called by the EDC in June 2008 as a result of the Chapter 11 Bankruptcy filing (see Note 13). |
| | |
| (c) | Greektown Casino signed an indemnity agreement with the City and the EDC with respect to certain matters. Payments made under this indemnity agreement plus liabilities accrued, resulted in capitalizing costs of $32,047,000 at December 31, 2009 and 2008, respectively. |
| | |
| This amount includes the costs to settle a lawsuit as more fully described in Note 13. |
| | |
| (d) | Greektown Casino contributed to the City its one-third interest, with a cost basis of $2,833,000, in Jefferson Casino, LLC. |
The Installment Payments, EDC payments, payments under the indemnity agreement and lawsuit settlement, and the contribution of the ownership interest in Jefferson Holdings, LLC gave rise to an identifiable intangible asset, Casino Development Rights, in the amount of $128,240,000, which under the terms of the Development Agreement, have an indefinite life.
The Company’s last license was renewed on December 14, 2007 and the annual renewal period expired on December 14, 2008 and its renewal is currently held in abeyance by the Michigan Gaming Control Board pending the Company’s bankruptcy reorganization.
Goodwill and indefinite-lived intangible assets must be reviewed for impairment at least annually or more frequently if impairment indicators are present. The Company performs its annual impairment test for Casino Development Rights as of October 1 of each fiscal year. In the fourth quarter of 2008, in connection with the preparation of the Company’s financial statements, management determined it was necessary to revise its assumptions and perform an interim impairment test of the Casino Development Rights intangible asset at December 31, 2008 due to several factors, which included (i) the uncertainty in the gaming market, (ii) continued uncertainty around the Company’s bankruptcy filing, and (iii) the recent and ongoing deterioration in the local and national economies.
Given the uncertainties in the gaming markets, coupled with the Company’s bankruptcy filing, management determined that the Casino Development Rights of the Company were fully impaired. Accordingly, during the fourth quarter of 2008, the Company impaired this asset in its entirety based on a discounted cash flow analysis. As a result, the Company recorded an impairment charge of $128,240,000 in the statement of operations for the year ended December 31, 2008.
6. Long-Term Debt, Notes Payable, and Debtor in Possession Financing
The Company entered into a financing agreement on December 2, 2005 that provided for a $190 million term loan and a $100 million revolving credit facility, to finance the payment for Greektown Casino’s existing credit facilities that were expiring. Effective April 2007, the Company’s
F-15
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
existing five-year revolving credit facilities (including letter-of-credit facilities) were increased to $125,000,000, expiring December 2010. The funds received by the Company under these credit facilities were advanced to Greektown Casino under the following terms:
| | |
| • | Seven-year maturity for the original long-term indebtedness and five-year maturity for revolving credit facility. |
| | |
| • | Quarterly amortization of $475,000, beginning on December 31, 2006 through December 31, 2011; thereafter, quarterly amortization payments of one-fourth the remaining outstanding amount for each of the four quarters beginning on March 31, 2012. As a result of the bankruptcy filing, these amortization payments have been stayed. |
| | |
| • | Interest payments are payable monthly or quarterly, at a rate equal to, at the Company’s option: (i) for a base rate loan, (a) the greater of (I) the rate of interest then most recently established by the administrative agent (Merrill Lynch Capital Corporation) in New York, New York, as its base rate for U.S. dollars loaned in the United States, and (II) the federal funds rate plus 0.50%, plus (b) a margin based on the ratio of total net senior debt to Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”) (1.50% or 1.75%) or (ii) for a LIBOR loan, LIBOR plus a margin based on the ratio of total net senior debt to EBITDA (2.50% or 2.75%). The margins mentioned above have been increased by 2% as a result of the bankruptcy filing. |
| | |
| • | Interest rate swap agreement with notional amount of $70 million, as more fully described below. |
The funds received and outstanding from the financing agreement are considered secured debt in default. As of December 31, 2009 and 2008, outstanding secured debt in default, along with the interest rates associated with such funds, consists of the following:
| | | | | | | | | |
Amount of Obligation | | Interest Rate
Structure | | Rate of
Interest | |
| |
| |
| |
December 31 | | | | | |
| | | | | |
2009 | | 2008 | | | | | |
| |
| | | | | |
(In Thousands) | | | | | |
$ | 172,157 | | $ | 160,561 | | BASE RATE + 3.250% | | 7.00 | % |
| 34,370 | | | 32,054 | | BASE RATE + 3.250% | | 7.00 | % |
| 135,527 | | | 126,717 | | BASE RATE + 3.000% | | 6.75 | % |
|
| |
|
| | | | | |
$ | 342,054 | | $ | 319,332 | | | | | |
|
| |
|
| | | | | |
On June 9, 2008, Holdings and the Company entered into a $150 million debtor-in-possession financing facility (the “DIP Financing”) in order to finance the remainder of the Expanded Complex and provide funding for working capital and reorganization expenses. The DIP Financing included a delayed draw term loan agreement for $135 million and a revolving credit facility for $15 million. There were strict guidelines as to how these funds would be used and were required to be approved and monitored by the U.S. Trustee as well as the MGCB.
The funds from the delayed draw term loan facility were only for construction related expenditures, while the funds from the revolving credit facility could be used to pay operational and construction related expenses.
F-16
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2008, the Company’s obligations, as they related to the DIP Financing, and the interest rates on these obligations are set forth below:
| | | | | | |
Amount of
Obligation | | Interest Rate
Structure | | Rate of
Interest | |
| |
| |
| |
(In Thousands) | | | | | |
$ | 115,134 | | BASE + 5.25% payable monthly | | 8.50 | % |
| 15,000 | | BASE + 5.25% payable monthly | | 8.50 | % |
|
| | | | | |
$ | 130,134 | | | | | |
|
| | | | | |
The DIP Financing was amended and restated on February 20, 2009 (the “Amended DIP Financing”) to provide up to an additional $46 million in two delayed draw term loans. There were strict guidelines as to how these additional funds could be used and had to be approved and monitored by the U.S. Trustee as well as the MGCB. Of the funds received from the two delayed draw term loans, $26 million could only be used for construction related expenses, while up to $20 million of the remaining commitment could be used to pay operational and construction related expenses and was available to the Company in increments upon achieving certain milestones as set forth in the agreement.
In addition to providing additional borrowings, the Amended DIP Financing adjusted the rate of interest on the delayed draw term loan and revolving credit facility as provided by the original DIP Financing from the base rate plus 5.25% per annum to the base rate plus 7.25% per annum. The interest rate applicable to the additional delayed draw term loans was the base rate plus 5.25%. The Amended DIP Financing restated the covenant requirements which the Company must comply with under the terms of the agreement.
The Amended DIP Financing also set forth an additional Paid-in-Kind interest (“PIK”) amount that was accrued and added to the then outstanding DIP Financing. The PIK was 5% of the outstanding amount of the original DIP Financing and had the same maturity date as the DIP Financing.
On December 29, 2009 the Company executed the Senior Secured Superpriority Debtor-in-Possession credit agreement (the “New DIP Credit Facility”), which provides maximum aggregate principal of $210 million. The New DIP Credit Facility consists of a $190 million Term A loan and a $20 million delayed draw term loan; the interest rate associated with these borrowings is 14.50% of which 11% is cash interest and 3.50% is PIK. Under the terms of the New DIP Credit Facility, the Term A Loan was utilized to fund the repayment in full of the DIP Credit Facility and the Amended DIP Credit Facility, while the delayed draw term loan may be used for operational needs. As of December 31, 2009 the Company was fully extended on the Term A Loan and had $20 million available to it under the delayed draw term loan. The PIK interest accrued at December 31, 2009 totaled $37,000.
The New DIP Credit Facility contains covenants including limitations on additional indebtedness, capital expenditures, mergers or acquisitions, dispositions of assets, loans and advances, and transactions with affiliates. Further, the Agreement requires the Company to maintain specific financial ratios including monthly minimum earnings before interest, taxes, depreciation, amortization, and restructuring costs (EBITDAR), as defined in the New DIP Credit Facility. At December 31, 2009, the Company was in compliance with the various covenants of the New DIP Credit Facility.
F-17
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2009, the Company’s obligations, as they relate to the New DIP Credit Facility and the interest rates on these obligations are set forth below:
| | | | | |
Amount of
Obligation | | Rate of
Interest | |
| |
| |
(In Thousands) | | | | |
$ | 190,037 | | | 11.00% fixed rate payable quarterly; 3.50% PIK | |
|
| | | | |
$ | 190,037 | | | | |
|
| | | | |
As security for the term loan and any amounts owing under the revolving credit facility, the Company has pledged its 100% equity interest in Greektown Casino.
Further, Greektown Casino also assigned a security interest in all of its assets as collateral for the above agreements, and has guaranteed repayment of these borrowings.
Except as permitted under the terms of the New DIP Credit Facility and other existing credit facilities, the Company will not be permitted to incur any other indebtedness.
Unsecured Notes
The Company also issued $185,000,000 in unsecured notes in December 2005 to finance its operations and meet its liability and equity commitments. The maturity date of the notes is December 1, 2013. As a result of the Chapter 11 filing the notes became unsecured pre-petition liabilities subject to compromise. Upon effectiveness of the Noteholder Plan, it is anticipated that the notes will be cancelled (See Note 3).
Effective January 19, 2006 and September 28, 2007, Holdings entered into interest rate swap agreements with notional amounts of $195 million and $70 million, respectively. The purpose of these interest rate swaps was to manage the cash flows related to well-defined interest rate costs and the risk associated with variable rate debt. These financial instruments were terminated as a result of the Chapter 11 filing. On the date of termination, the liabilities under the swap agreements became fixed at $9,270,000 related to the $195 million interest rate swap agreement and $2,750,000 related to the $70 million interest rate swap agreement and were included in liabilities not subject to compromise. Interest on these obligations is recorded in accrued expenses and other liabilities and monthly interest is accrued at an 8.5% interest rate.
7. Leases
Greektown Casino entered into a non-cancelable operating lease for warehouse space; however, this agreement expired during May 2009, and the new agreement includes a thirty (30) day cancellation clause. Rental expense under these agreements for the years ended December 31, 2009, 2008, and 2007, was $80,000, $423,000, and $2,662,000, respectively. Greektown Casino also subleases certain portions of its owned or leased facilities under noncancelable operating leases. Rental income under these leases for the years ended December 31, 2009, 2008, and 2007 was $506,000, $660,000, and $778,000, respectively.
In addition, during 2007 Greektown Casino entered into a settlement agreement with the lessor of a parking garage whereby Greektown Casino agreed to pay $2.25 million related to lease restoration costs; this amount was recorded as an expense during 2007, and the related liability is recorded in pre-petition payables subject to compromise at December 31, 2009 and 2008.
F-18
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At December 31, 2009, future minimum rental payments required under noncancelable operating leases, with initial or remaining lease terms in excess of one year and lease and sublease income were as follows:
| | | | | | | |
| | Capital
Lease
Payments | | Lease
and
Sublease
Income | |
| |
| |
| |
Periods ending December 31: | | | | | | | |
2010 | | $ | 336 | | $ | 446 | |
2011 | | | 336 | | | 428 | |
2012 | | | 336 | | | 319 | |
2013 | | | 336 | | | 319 | |
2014 | | | 336 | | | 265 | |
Thereafter | | | 7,364 | | | 1,993 | |
| |
|
| |
|
| |
| | | 9,044 | | $ | 3,770 | |
| | | | |
|
| |
| | | | | | | |
Less amount representing interest | | | 8,258 | | | | |
| |
|
| | | | |
Present value of net minimum capital lease payments | | | 786 | | | | |
Less current installments of obligation under a capital lease | | | — | | | | |
| |
|
| | | | |
| | $ | 786 | | | | |
| |
|
| | | | |
Certain of the leases include escalation clauses relating to the consumer price index, utilities, taxes, and other operating expenses. Greektown Casino will receive additional rental income in future years based on those factors that cannot be estimated currently.
8. Related-Party Transactions
The Company and Greektown Casino have entered into certain business transactions with individuals or entities related to the ownership of direct or indirect member interests. Under the provisions of their internal control system, expenditures to any one related party in excess of $50,000 annually must be approved by the Company’s management board.
For the years ended December 31, 2009, 2008, and 2007 payments to related parties, other than financing-related activities and member distributions, totaled approximately $8,926,000, $2,136,000, and $784,000, respectively.
Greektown Casino entered into a management services agreement with the Sault Ste. Marie Tribe of Chippewa Indians (the “Tribe”), a related entity to Kewadin, Monroe, and the Company, which required the Greektown Casino to pay a base management fee of $110,000 per month, as well as the reimbursement of travel, lodging, and out-of-pocket expenses incurred and all reasonable salary costs and fringe benefit expenses of key personnel who are providing such contracted services. This agreement was rejected by the Debtors in the restructuring proceedings. As such, these payments were discontinued, however, the pre-petition amount owed to the Tribe as of December 31, 2009 and 2008 is $550,000, which is classified as liabilities subject to compromise.
In November 2007, Kewadin made a $35 million equity contribution to the Company to cure non-compliance with certain financial covenants under the Company’s pre-petition credit facility. Additionally, Kewadin made equity contributions of approximately $600,000, $10 million and $1.5 million to Greektown Holdings for construction fees related to the construction of the Expanded Complex in January 2008, March 2008, and May 2008, respectively.
Greektown Casino periodically enters into certain business transactions with persons related to the direct or indirect ownership of their member interests. Since 2007, Greektown Casino has entered into the following related person transactions:
F-19
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | |
| • | Greektown Casino has entered into various transactions with New Millennium Advisors, LLC to purchase uniforms used in the operation of Greektown Casino (e.g., uniforms for dealers, kitchen staff, security, etc.) which totaled approximately $1,000, $83,000 and $129,000 for the years ended December 31, 2009, 2008, and 2007, respectively. New Millennium Advisors, LLC is owned, in whole or in part, by Marvin Beatty, a former director of Holdings and Greektown Casino and current member of Monroe. |
| | |
| • | Customers of Greektown Casino have the ability to earn food complimentaries (comps) for use at Fishbones, an upscale seafood restaurant located near Greektown Casino. Greektown reimburses Fishbones at a discounted rate for the costs to Fishbones for providing food to customers redeeming the comps. Greektown LLC expenses with respect to the Fishbones comps totaled approximately $672,000, $1 million, and $0 for the years ended December 31, 2009, 2008, and 2007, respectively. Fishbones is owned in part by Ted Gatzaros, a former director of Greektown LLC and current member of Monroe. |
| | |
| • | Customers of Greektown have the ability to earn hotel comps for use at the Atheneum Suite Hotel at a discounted rate for the costs to the hotel for providing lodging to customers redeeming the comps. Greektown LLC expenses with respect to the Atheneum Suite Hotel complimentaries totaled approximately $169,000, $306,000, and $0 for the years ended December 31, 2009, 2008, and 2007, respectively. The Atheneum Suite Hotel is owned in part by Ted Gatzaros, a former director of Greektown Casino and current member of Monroe. |
Randall A. Fine, who was the Chief Executive Officer until December 31, 2009, is the Managing Director of the Fine Point Group. Greektown Casino and the Fine Point Group entered into the Consulting Agreement (as subsequently defined) as of December 31, 2008 (See Note 11).
Accounts receivable—other includes $298,000 as of December 31, 2009 and 2008, for the amounts due from Monroe, a member of the Company.
9. Members’ Deficit
When it was formed in September 2005, Holdings’ interest in Greektown Casino was transferred to Holdings by the two owners. Consistent with their former ownership interests in Greektown Casino, Kewadin and Monroe each own a 50% interest in Holdings. The transactions involving a substitution of Holdings for the members’ interests in Greektown Casino have been considered as transactions between common control entities, and therefore have been accounted for at carrying value.
As part of this ownership transaction, the member agreement among Kewadin, Monroe, and Greektown Holdings became the member agreement among Kewadin, Monroe, and the Company.
During the years ended December 31, 2009, 2008, and 2007, a member of the Company made equity contributions totaling $0, $12,100,000, and $35,000,000, respectively, to the Company. The 2008 contributions were made in the first and second quarter, and all contributions were made before the Chapter 11 filing.
10. Gaming Taxes and Fees
Under the provisions of the Michigan Gaming Control and Revenue Act (the “Act”), casino licensees are subject to the following gaming taxes and fees on an ongoing basis:
| | |
| • | An annual licensing fee; |
| | |
| • | An annual payment, together with the other two casino licensees, of all MGCB regulatory and enforcement costs. Greektown Casino was assessed $10,233,000, $10,003,000, and $9,826,000, for its portion of the annual payment for the years ended December 31, 2009, 2008, and 2007, respectively; |
F-20
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | |
| • | A wagering tax, calculated based on adjusted gross gaming receipts, payable daily, of 24% (the Act also provides for certain increases in the wagering tax if Greektown Casino’s Expanded Complex facilities are not operational from and after July 1, 2009, and a reduction in that tax once they are operational); and, |
| | |
| • | A municipal services fee in an amount equal to the greater of 1.25% of adjusted gross gaming receipts or $4 million annually. |
These gaming taxes and fees are in addition to the taxes, fees, and assessments customarily paid by business entities conducting business in the State of Michigan and the City and amounted to $75,635,000, $83,116,000, and $89,596,000, for the years ended December 31, 2009, 2008, and 2007, respectively.
Effective January 1, 2006, the Company has also been required to pay a daily fee to the City of 1% of adjusted gross receipts, increasing to 2% of adjusted gross receipts if adjusted gross receipts exceed $400 million in any one calendar year. Additionally, if and when adjusted gross receipts exceed $400 million, the Company will be required to pay $4 million to the City. The Company’s adjusted gross receipts did not exceed $400 million during the calendar years 2009, 2008, or 2007.
The Act, was amended in 2004 to increase the wagering tax rate for the three Detroit casinos from 18% of adjusted gross receipts to 24% of adjusted gross receipts. If the MGCB determines that (1) the licensee has been “fully operational” for 30 consecutive days and (2) the licensee has been in compliance with its Revised Development Agreement for at least 30 consecutive days, then the MGCB is required to certify the licensee and the tax rate will revert to a 1% increase only, resulting in a tax rate for Greektown of 19% of adjusted gross receipts (the “Tax Rollback”).
Greektown was “fully operational” and had complied with the first requirement (fully operational for 30 consecutive days) on March 17, 2009. “Fully operational” is defined in the Gaming Act as follows: “a certificate of occupancy has been issued to the casino licensee for the operation of a hotel with not fewer than 400 guest rooms and, after issuance of the certificate of occupancy, the casino licensee’s casino, casino enterprise and 400-guest room hotel have been opened and made available for public use at their permanent location and maintained in that status.” MCL 432.212(15)(a). Greektown received a temporary certificate of occupancy on the 400 guest room hotel on February 6, 2009, and opened all of the 400 guest rooms to the public on February 15, 2009.
The Company also has met the second requirement, that it had been in compliance with the Development Agreement for 30 consecutive days, however, the City had asserted that it did not believe Greektown was in compliance with the Development Agreement.
On October 9, 2009, the Debtors filed a motion with the Bankruptcy Court to approve a settlement agreement (the “Settlement Agreement”) with the City, which resolved all disputes with the City. The Bankruptcy Court approved the Settlement Agreement on February 22, 2010, which reached a resolution of all disputes with the City. The Settlement Agreement provides, among other things:
| | |
| • | The City should use its best efforts to support the Debtors efforts in obtaining the Tax Rollback effective as of February 15, 2009 before the MGCB (which was subsequently obtained on March 9, 2010); |
| | |
| • | The Debtors should pay the City a settlement amount in the aggregate of $16,629,000 (the “Settlement Payment”), less certain credits described below, subject to the following provisions: (i) the Debtor should pay initial cash payment of $3.5 million (the “Initial Cash Payment”) within two business days after entry of an order by the Bankruptcy court approving the Settlement Agreement; (ii) a credit should be applied to reduce the Settlement Payment in an amount equal to the difference between (a) the amount of gaming taxes actually paid to the City between February 15, 2009 and February 15, 2010 and (b) the |
F-21
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| | |
| | amount of gaming taxes that would have been paid through the date of the settlement to the City had the Tax Rollback been effective as of February 15, 2009); and (iii) the Debtors should pay a final cash amount of $9,600,000 (“Final Cash Payment”), which is the remaining amount of Settlement Payment after the Initial Cash Payment and the application of the credit described above. |
| | |
| • | Upon the receipt of the Final Cash Payment, the City should be deemed to have dismissed and waived any and all claims of default under the Development Agreement; |
| | |
| • | The City should cease its demand for a 1% tax increase due to the delayed completion of the Expanded Complex; |
| | |
| • | The City should consent to the transfer of the ownership of the Greektown Casino and the Development Agreement to the reorganized Debtors in accordance with the Plan; and |
| | |
| • | The City should take actions to dismiss all related litigation. |
The Settlement Agreement was conditioned upon (i) approval of the Settlement Agreement by the Bankruptcy Court, which was obtained on February 22, 2010; and (ii) final approvals of the Settlement Agreement from various offices of the City, which was obtained on February 24, 2010.
On March 9, 2010, the Michigan Gaming Control Board certified that the casino was in compliance with the development agreement as of February 15, 2009 and as such was entitled to a tax adjustment retroactive to February 15, 2009. As a result of the retroactive adjustment, the Company recorded a receivable from the State of Michigan for approximately $12.3 million at December 31, 2009.
On December 11, 2007, the Company entered into an Acknowledgement of Violation (“AOV”) with the Michigan Gaming Control Board. The AOV included four complaints addressing procurement, kiosks, electronic gaming device meters, and signage. Under the terms of the AOV, a total fine of $750,000 was assessed, of which $300,000 was immediately payable and $450,000 would not be an obligation unless the Company commits further violation for three years. The Company recorded the $300,000 as expense during 2007. The remaining amount has not been recorded as no further violations occurred during the years ended December 31, 2009 and 2008.
11. Commitments and Contingencies
Millennium Management Group LLC (“Millennium”) was previously retained to provide the Company with certain consulting services related to the operation of the casino for a period through November 30, 2010, $1 million was paid for the year ended December 31, 2007 under the terms of this agreement. During 2008, a motion was filed with the U.S. Bankruptcy Court to reject the contract and the motion was granted by the bankruptcy judge.
In 2009, the Company entered into a consulting agreement with the Fine Point Group (the “Consultants”) as required by the bankruptcy court. The Consultants received a fixed fee of $150,000 per month plus expenses.
The Consultants also received a success fee, which was calculated on a quarterly basis, based on preset EBITDAR numbers.
F-22
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The table below shows the budgeted EBITDAR numbers that were required to be attained in order to receive the success fee:
| | | | | | | |
| | A | | B | |
| |
| |
| |
Quarter ended: | | | | | |
03/31/09 | | $ | 9,436,000 | | $ | 11,534,000 | |
06/30/09 | | | 11,058,000 | | | 13,515,000 | |
09/30/09 | | | 10,688,000 | | | 13,063,000 | |
12/31/09 | | | 13,818,000 | | | 16,888,000 | |
| |
|
| |
|
| |
| | $ | 45,000,000 | | $ | 55,000,000 | |
| |
|
| |
|
| |
For any calendar quarter during 2009, the success fee was equal to: (i) 10% of the amount by which actual quarterly EBITDAR exceeds the amount referenced in column A for the corresponding quarter, up to the amount referenced in column B; plus (ii) 30% of the amount by which actual quarterly EBITDAR exceeds the amount referenced in column B for the corresponding quarter. For purposes of calculating EBITDAR, the fees earned by and owing to the consultants, including all out of pocket expenses reimbursed to the Consultants, shall be included as expenses. For the year ended December 31, 2009, expenses related to the consulting agreement with the Fine Point Group consisted of the following: success fees of $6,240,000, fixed fees of $1,725,000 and expenses of $434,000. The Consultants’ agreement expired as of December 31, 2009 and was not renewed.
During the construction period, the Company entered into several agreements with various vendors providing goods and services related to the development of the Expanded Complex. As of December 31, 2009, there were no material commitments related to construction of the Expanded Complex.
The Company is a defendant in various pending litigation. In management’s opinion, the ultimate outcome of such litigation will not have a material adverse effect on the results of operations or the financial position of the Company.
The Revised Development Agreement also provides that should a triggering event as defined, occur, the Company must sell its assets, business, and operations as a going concern at their fair market value to a developer named by the City.
12. Selected Quarterly Financial Data (unaudited)
The following tables present selected quarterly financial information for the years ended December 31, 2009 and 2008.
| | | | | | | | | | | | | |
| | 2009 Quarter Ended | |
| |
| |
| | March 31 | | June 30 | | September 30 | | December 31 | |
| |
| |
| |
| |
| |
| | (In Thousands) | |
Net revenues | | $ | 78,568 | | $ | 85,500 | | $ | 86,272 | | $ | 81,265 | |
Operating expenses | | | 66,180 | | | 69,445 | | | 72,981 | | | 76,833 | |
Income from operations | | | 12,388 | | | 16,055 | | | 13,291 | | | 4,432 | |
Net loss | | | (10,208 | ) | | (10,902 | ) | | (15,997 | ) | | (28,837 | ) |
| | | | | | | | | | | | | |
| | 2008 Quarter Ended | |
| |
| |
| | March 31 | | June 30 | | September 30 | | December 31 | |
| |
| |
| |
| |
| |
| | (In Thousands) | |
Net revenues | | $ | 80,538 | | $ | 72,887 | | $ | 69,100 | | $ | 64,203 | |
Operating expenses | | | 65,590 | | | 60,474 | | | 58,250 | | | 188,135 | |
Income (loss) from operations | | | 14,948 | | | 12,413 | | | 10,850 | | | (123,932 | ) |
Net (loss) income | | | (3,626 | ) | | 929 | | | (9,643 | ) | | (140,568 | ) |
F-23
GREEKTOWN HOLDINGS, L.L.C.
(Debtor-In-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Long-Term Payables to the City
Under the original Development Agreement among the Company, the City, and the EDC, the Company was required to provide letters of credit (“LOCs”) to support certain bonds issued by the EDC in connection with the acquisition and development of a proposed permanent casino site. Under the Revised Development Agreement, the Company was required to maintain its standby LOCs, totaling $49,928,000, recorded as a long-term payable for the year ended December 31, 2007, to secure principal and interest payments on certain bonds issued by the EDC; however, the LOCs were redeemed as a result of the Chapter 11 Bankruptcy filing. On June 12, 2008, the EDC redeemed the LOCs for a total amount of $49,393,000 of which $49,360,000 was the payment of the principal amount and the $33,000 was accrued interest through eleven (11) days of June, which resulted in the retirement of the long-term payable to the City and effectively converted the balance to secured debt in default. The proceeds of the bonds were used to acquire land along the Detroit River, where the permanent casino facilities were initially proposed to be located. Under the Revised Development Agreement, the Company and the other Detroit casino developers will forgo their right to receive any of the land.
14. 401(k) Plan
Employees of the Company can participate in a 401(k) Plan (the “Plan”). For union employees, Greektown Casino shall make contributions to the Plan based on years of service. The total payments made and expense recognized under the Plan by the Company for the years ended December 31, 2009, 2008, and 2007 amounted to $1,606,000, $1,969,000, and $2,178,000, respectively. In December 2008, the Company terminated the matching contribution as it relates to salaried employees.
15. Lawsuit Settlement Obligation
A settlement agreement was reached in various lawsuits that were filed challenging the constitutionality of the Casino Development Competitive Selection Process Ordinance. As of December 31, 2009, payments totaling $17 million have been made against this settlement obligation. Additional payments required under the agreement include $1 million (inclusive of interest) annually for the next 24 years through 2031. As a result of the Chapter 11 filing the estimated settlement of $12,303,000 as of December 31, 2009 and 2008, is classified as “Liabilities Subject to Compromise” and no payments have been made in 2009.
F-24
GREEKTOWN SUPERHOLDINGS, INC.
UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 2010
FQ-1
Greektown Superholdings, Inc.
Consolidated Balance Sheets
(In Thousands)
| | | | | | | | |
| | Successor
June 30,
2010 | | | Predecessor
December 31,
2009 | |
| | (unaudited) | | | | | |
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 13,596 | | | $ | 25,692 | |
Certificate of deposit | | | 532 | | | | 530 | |
Accounts receivable – gaming, net | | | 1,692 | | | | 3,603 | |
Accounts receivable – other, net | | | 1,296 | | | | 1,069 | |
Notes receivable | | | 2,000 | | | | 2,460 | |
Gaming tax receivable | | | 5,743 | | | | 12,328 | |
Inventories | | | 413 | | | | 433 | |
Prepaid expenses and other current assets | | | 12,724 | | | | 19,498 | |
Current portion of financing fees | | | 3,308 | | | | 3,042 | |
Total current assets | | | 41,304 | | | | 68,655 | |
| | | | | | | | |
Property, building, and equipment, net | | | 339,554 | | | | 472,271 | |
| | | | | | | | |
Other assets: | | | | | | | | |
Financing fees, net of accumulated amortization of $0 and $27,982 in 2010 and 2009, respectively | | | 12,894 | | | | 6,670 | |
Deposits and other assets | | | 30 | | | | 30 | |
Casino development rights | | | 117,800 | | | | — | |
Trade names | | | 26,300 | | | | — | |
Rated player relationships | | | 69,000 | | | | — | |
Goodwill | | | 108,475 | | | | — | |
| | | | | | | | |
Total assets | | $ | 715,357 | | | $ | 547,626 | |
The accompanying notes are an integral part of the consolidated financial statements.
FQ-2
Greektown Superholdings, Inc.
Consolidated Balance Sheets
(In Thousands)
| | | | | | | | |
| | Successor
June 30,
2010 | | | Predecessor
December 31,
2009 | |
| | (unaudited) | | | | | |
Liabilities and shareholders’ equity (members’ deficit) | | | | | | | | |
Current liabilities: | | | | | | | | |
Debtor-in-possession financing | | $ | — | | | $ | 190,037 | |
Secured debt in default | | | — | | | | 342,054 | |
Accounts payable | | | 11,569 | | | | 12,846 | |
City of Detroit settlement agreement accrual | | | — | | | | 13,547 | |
Accrued interest | | | — | | | | 1,650 | |
Accrued income taxes | | | 7,230 | | | | 587 | |
Unsecured distribution liability | | | 10,000 | | | | — | |
Notes payable | | | 977 | | | | 1,890 | |
Accrued expenses and other liabilities | | | 13,935 | | | | 20,360 | |
Total current liabilities | | | 43,711 | | | | 582,971 | |
| | | | | | | | |
Liabilities subject to compromise | | | — | | | | 252,420 | |
| | | | | | | | |
Long-term liabilities: | | | | | | | | |
Senior secured notes | | | 362,605 | | | | — | |
Obligation under capital lease | | | 2,522 | | | | 786 | |
Deferred michigan business tax | | | 3,720 | | | | 2,370 | |
Total long-term liabilities | | | 368,847 | | | | 3,156 | |
| | | | | | | | |
Total liabilities | | | 412,558 | | | | 838,547 | |
| | | | | | | | |
Shareholders’ equity (members’ deficit): | | | | | | | | |
Series A-1 preferred stock at $0.01 par value; 1,688,268 shares authorized, 1,463,535 shares issued and outstanding at June 30, 2010 | | | 185,396 | | | | — | |
Series A-2 preferred stock at $0.01 par value; 645,065 shares authorized, 162,255 shares issued and outstanding at June 30, 2010 | | | 20,551 | | | | — | |
Series A-1 preferred warrants at $0.01 par value; 202,511 shares issued and outstanding at June 30, 2010 | | | 25,651 | | | | — | |
Series A-2 preferred warrants at $0.01 par value; 460,587 shares issued and outstanding at June 30, 2010 | | | 58,342 | | | | — | |
Series A-1 common stock at $0.01 par value; 4,354,935 shares authorized, 140,000 shares issued and outstanding at June 30, 2010 | | | 1 | | | | — | |
Series A-2 common stock at $0.01 par value; 645,065 shares authorized, no shares issued | | | — | | | | — | |
Additional paid-in capital | | | 12,858 | | | | 47,588 | |
Retained earnings | | | — | | | | (338,509 | ) |
Total shareholders’ equity (members’ deficit) | | | 302,799 | | | | (290,921 | ) |
Total liabilities and shareholders’ equity (members’ deficit) | | $ | 715,357 | | | $ | 547,626 | |
The accompanying notes are an integral part of the consolidated financial statements.
FQ-3
Greektown Superholdings, Inc.
Consolidated Statements of Operations (unaudited)
(In Thousands)
| | | | | | | | | | | | | |
| | Predecessor
Three Months Ended June 30, | | Predecessor
Six Months Ended June 30, | |
| | 2010 | | 2009 | | 2010 | | 2009 | |
| |
|
|
|
|
Revenues | | | | | | | | | | | | | |
Casino | | $ | 85,395 | | $ | 84,059 | | $ | 173,563 | | $ | 162,631 | |
Food and beverage | | | 5,695 | | | 5,928 | | | 11,924 | | | 10,847 | |
Hotel | | | 2,436 | | | 2,729 | | | 4,628 | | | 3,480 | |
Other | | | 1,249 | | | 1,348 | | | 2,482 | | | 2,500 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenues | | | 94,775 | | | 94,064 | | | 192,597 | | | 179,458 | |
Less promotional allowances | | | 11,889 | | | 8,564 | | | 23,591 | | | 15,390 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues | | | 82,886 | | | 85,500 | | | 169,006 | | | 164,068 | |
| | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | |
Casino | | | 21,012 | | | 17,970 | | | 40,425 | | | 36,359 | |
Gaming taxes | | | 18,851 | | | 22,961 | | | 38,469 | | | 44,460 | |
Food and beverage | | | 3,903 | | | 4,422 | | | 7,817 | | | 8,411 | |
Hotel | | | 2,310 | | | 1,905 | | | 4,397 | | | 2,724 | |
Marketing, advertising, and entertainment | | | 2,070 | | | 1,818 | | | 4,146 | | | 2,856 | |
Facilities | | | 4,903 | | | 4,381 | | | 9,689 | | | 9,243 | |
Depreciation and amortization | | | 5,271 | | | 3,173 | | | 10,488 | | | 5,747 | |
General and administrative expenses | | | 10,542 | | | 10,099 | | | 21,437 | | | 20,338 | |
Other | | | 53 | | | 129 | | | 105 | | | 285 | |
Pre-opening expenses | | | — | | | — | | | — | | | 1,043 | |
Consulting company success fee | | | — | | | 2,588 | | | — | | | 4,160 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses | | | 68,915 | | | 69,446 | | | 136,973 | | | 135,626 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations | | | 13,971 | | | 16,054 | | | 32,033 | | | 28,442 | |
| | | | | | | | | | | | | |
Net gain (loss) on Chapter 11 related reorganization items and fresh start adjustments | | | 309,465 | | | (4,465 | ) | | 301,352 | | | (10,255 | ) |
| | | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | | |
Interest income (expense) | | | (18,682 | ) | | (17,998 | ) | | (37,489 | ) | | (31,355 | ) |
Amortization of finance fees | | | (1,039 | ) | | (4,551 | ) | | (2,079 | ) | | (8,355 | ) |
Other | | | — | | | — | | | (298 | ) | | 154 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net | | | (19,721 | ) | | (22,549 | ) | | (39,866 | ) | | (39,556 | ) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Income (loss) before provisions for state income taxes | | | 303,715 | | | (10,960 | ) | | 293,519 | | | (21,369 | ) |
| | | | | | | | | | | | | |
Michigan business tax (expense) benefit – current | | | (487 | ) | | 188 | | | (1,248 | ) | | (12 | ) |
Michigan business tax (expense) benefit – deferred | | | (1,387 | ) | | (133 | ) | | (1,350 | ) | | 268 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) | | $ | 301,841 | | $ | (10,905 | ) | $ | 290,921 | | $ | (21,113 | ) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
FQ-4
Greektown Superholdings, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In Thousands)
| | | | | | | | |
| | Predecessor
Six Months ended June 30, | |
| �� | 2010 | | | 2009 | |
Operating activities | | | | | | | | |
Net income (loss) | | $ | 290,921 | | | $ | (21,113 | ) |
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | | | | | | | | |
Depreciation and amortization | | | 10,488 | | | | 5,747 | |
Amortization of financing fees | | | 2,079 | | | | 8,355 | |
Bad debt expense | | | 1,500 | | | | — | |
Chapter 11 related reorganization items and fresh start adjustments | | | (301,354 | ) | | | 10,255 | |
Deferred Michigan business tax | | | 1,350 | | | | (271 | ) |
Changes in current assets and liabilities: | | | | | | | | |
Accounts receivable | | | 184 | | | | (715 | ) |
State of Michigan gaming tax refundable | | | 6,585 | | | | | |
Inventories | | | 20 | | | | 1 | |
Prepaid expenses and other current assets | | | 4,748 | | | | 5,196 | |
Notes receivables | | | 460 | | | | (60 | ) |
Accounts payable | | | (6,315 | ) | | | (7,962 | ) |
Accrued PIK interest | | | (27,783 | ) | | | 7,808 | |
City of Detroit settlement agreement accrual | | | (13,547 | ) | | | — | |
Accrued expenses, interest, and other liabilities | | | 14,031 | | | | 16,581 | |
Net cash (used in) provided by operating activities before reorganization costs | | | (16,633 | ) | | | 23,822 | |
Operating cash flows for reorganization costs | | | (14,557 | ) | | | (10,813 | ) |
Net cash (used in) provided by operating activities | | | (31,190 | ) | | | 13,009 | |
| | | | | | | | |
Investing activities | | | | | | | | |
Capital expenditures | | | (5,566 | ) | | | (33,965 | ) |
Investment in certificate of deposit | | | (2 | ) | | | (5 | ) |
Net cash used in investing activities | | | (5,568 | ) | | | (33,970 | ) |
| | | | | | | | |
Financing activities | | | | | | | | |
Proceeds from borrowings on long-term debt and notes payable | | | 362,605 | | | | 28,523 | |
Payments on long-term debt | | | (516,328 | ) | | | (263 | ) |
Payments on notes payable | | | (913 | ) | | | (3,907 | ) |
Financing fees paid | | | (16,702 | ) | | | (7,434 | ) |
Proceeds from issuance of stockholders’ equity | | | 196,000 | | | | — | |
Net cash provided by financing activities | | | 24,662 | | | | 16,919 | |
| | | | | | | | |
Net decrease in cash and cash equivalents | | | (12,096 | ) | | | (4,042 | ) |
Cash and cash equivalents at beginning of period | | | 25,692 | | | | 24,032 | |
Cash and cash equivalents at end of period | | $ | 13,596 | | | $ | 19,990 | |
| | | | | | | | |
Supplemental disclosure of cash flow information | | | | | | | | |
Cash paid during the year for interest | | $ | 13,689 | | | $ | 9,508 | |
The accompanying notes are an integral part of the consolidated financial statements.
FQ-5
Consolidated Statements of Shareholders’ Equity (unaudited)
(In Thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Successor
Greektown Superholdings, Inc. | | | Predecessor
Greektown Holdings | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common
Stock
A-1 | | Common
Stock
A-2 | | Preferred
Stock
A-1 | | Preferred
Stock
A-2 | | Preferred
Warrants
A-1 | | Preferred
Warrants
A-2 | | Additional
Paid-in
Capital | | Retained
Earnings | | Total
Shareholders’
Equity | | | Contributed
Capital | | Accumulated
Income
(Deficit) | | Total
Members’
Deficit | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2008 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 47,588 | | $ | (272,565 | ) | $ | (224,977 | ) |
Member contribution | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | — | | | — | |
Net loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | (65,944 | ) | | (65,944 | ) |
Balance at December 31, 2009 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 47,588 | | $ | (338,509 | ) | $ | (290,921 | ) |
Net income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | 290,921 | | | 290,921 | |
Elimination of Holdings’ deficit | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (47,588 | ) | | 47,588 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 17, 2010 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | | — | | | — | | | — | |
Issuance of shareholders’ equity | | | 1 | | | — | | | 185,396 | | | 20,551 | | | 25,651 | | | 58,342 | | | 12,858 | | | — | | | 302,799 | | | | — | | | — | | | — | |
Balance at June 30, 2010 | | $ | 1 | | $ | — | | $ | 185,396 | | $ | 20,551 | | $ | 25,651 | | $ | 58,342 | | $ | 12,858 | | $ | — | | $ | 302,799 | | | $ | — | | $ | — | | $ | — | |
FQ-6
Note 1. Organization, Background and Bankruptcy Considerations
Organization
Greektown Holdings, L.L.C. (“Greektown Holdings”) was formed in September 2005 as a limited liability company owned by Kewadin Greektown Casino, L.L.C. (“Kewadin Greektown”), which was 100% owned by the Sault Ste. Marie Tribe of Chippewa Indians (the “Tribe”), and Monroe Partners, L.L.C. (“Monroe”). Greektown Holdings owns Greektown Casino, L.L.C. (“Greektown LLC”), which is engaged in the operation of a hotel and casino gaming facility known as Greektown Casino Hotel (“Greektown Casino”) located in downtown Detroit that opened November 10, 2000 under a license granted by the Michigan Gaming Control Board (“MGCB”) and a Development Agreement with the City of Detroit.
On May 29, 2008, Greektown Holdings, together with its direct and indirect subsidiaries and certain affiliates, filed voluntary petitions to reorganize their businesses under Chapter 11 of the United States Bankruptcy Code in the Unites States Bankruptcy Court for the Eastern District of Michigan. As contemplated by a plan of reorganization (the “Plan”) approved by the Bankruptcy Court, the details of which are described in the subsequent “Background and Bankruptcy Considerations” section, Greektown Superholdings, Inc. (“Greektown Superholdings,” and together with its subsidiaries “we,” “our,” “us,” “the Company,” or “Greektown”) was incorporated under the laws of the State of Delaware on March 17, 2010. As of the Effective Date (as defined below in “Background & Bankruptcy Considerations”), each of Greektown Superholdings and its wholly-owned subsidiary, Greektown Newco Sub, Inc. (the “Greektown Sub”), hold 50% of the outstanding membership interests of Greektown Holdings. Greektown Superholdings is a holding company. Through its direct and indirect ownership of Greektown LLC, Greektown Superholdings owns and operates Greektown Casino. Greektown LLC also holds all the ownership interest in Contract Builders Corporation (“Contract Builders”), Realty Equity Company, Inc. (“Realty Equity”) and Trappers GC Partner, LLC (“Trappers”), each of which own real estate near Greektown Casino. The assets of Trappers were transferred to Greektown Casino and Trappers will be dissolved pursuant to the Plan. Unless otherwise indicated or the context otherwise requires, the following discussion describes the business and operations of Greektown Superholdings after the Effective Date. Greektown Superholdings’ corporate headquarters are located at 555 East Lafayette, Detroit, Michigan 48226.
FQ-7
Background & Bankruptcy Considerations
The following discussion provides a summary of the events leading to consummation of the Plan, which was proposed by the Put Parties (as defined below) and certain other parties in the Chapter 11 cases involving Greektown Holdings.
On May 29, 2008 (the “Petition Date”), Greektown Holdings, its direct and indirect subsidiaries and certain affiliates (collectively, the “Debtors” or “Predecessor”) filed voluntary petitions to reorganize their businesses under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Michigan (the “Bankruptcy Court”). These cases were consolidated under the caption, “In re Greektown Holdings, L.L.C., et al. Case No. 08-53104.” On August 26, 2009, the Debtors filed the Second Amended Joint Plans of Reorganization (the “Debtor Plan”) and the Second Amended Disclosure Statement for Joint Plans of Reorganization (the “Debtor Disclosure Statement”). On September 3, 2009, the Bankruptcy Court approved the Debtor Disclosure Statement.
On November 2, 2009, certain holders of the 10-3/4% Senior Notes due 2013 (the “Senior Notes”) issued by Greektown Holdings and Greektown Holdings II, Inc. and certain other parties (the “Put Parties”) entered into a Purchase and Put Agreement, dated November 2, 2009 (as amended by that certain First Amendment to Purchase and Put Agreement, dated January 11, 2010, the “Purchase and Put Agreement”).
The effectiveness of the Plan was conditioned, among other things, on the receipt of all required authorizations, consents and regulatory approvals, including those from the City of Detroit and the MGCB, obtaining the Revolving Loan, as defined below, the satisfaction or waiver of the conditions precedent in the documents governing the Exit Financing, as defined below, and the actions, documents and agreements necessary to implement the Plan being satisfactory in form and substance to the Put Parties prior to June 30, 2010. The Plan became effective and the Debtors emerged from bankruptcy on June 30, 2010 (the “Effective Date”), upon satisfaction of such conditions.
The Plan, which was substantially consistent with the terms set forth in the Purchase and Put Agreement, generally provided for the full payment or reinstatement of allowed administrative claims, priority claims, post-petition secured claims, and pre-petition secured claims, the satisfaction of general unsecured claims through the distribution of cash and litigation trust interests and the cancellation of the existing equity interests in Greektown Holdings. The deadline to file administrative claims, professional claims and substantial contribution claims occurred on August 14, 2010. As provided in the Plan and confirmation order, such claims, if any, may not be subject to resolution under the Plan. The Plan also provided that the holders of Senior Notes receive all of the shares of our Common Stock issued pursuant to the Plan and the rights issued in the Rights Offering (as defined below) plus interests in litigation trust (the “Litigation Trust”). The Litigation Trust, which has been established pursuant to the Plan, has authority and standing to, among other things, (i) monitor distributions to general unsecured creditors under the Plan and (ii) perform the general unsecured creditors’ claims reconciliation process. On the Effective Date, rights to certain claims or causes of action of the Debtors were placed into the Litigation Trust. On the Effective Date, Greektown LLC loaned $375,000 on a non-recourse basis to the Litigation Trust to fund the fees, expenses, and costs of the Litigation Trust (the “Litigation Trust Loan”), which is evidenced by a note payable by the Litigation Trust to Greektown LLC. A trustee was appointed for the Litigation Trust who will, among other things, hold the assets of the trust for the benefit of the holders of general unsecured claims and such other beneficiaries as described in the Plan, prosecute or resolve certain unsettled litigation claims and make distributions of consideration received by the Litigation Trust as a result of any judgment, settlement, or compromise of any such claims.
FQ-8
Pursuant to the Plan, the sale of 1,850,000 shares of Preferred Stock in a rights offering (the “Rights Offering”), together with the direct purchase of 150,000 shares of Preferred Stock by certain of the Put Parties, all at a purchase price of $100 per share, provided approximately $196 million in net proceeds to the Debtors’ estates. Such net amount reflects the determination of the Put Parties to receive $4 million of the Cash Put Premium from Greektown Superholdings in cash and 66,666 shares of Preferred Stock in lieu of the remaining $6 million of the Cash Put Premium. All of the purchases of Preferred Stock were completed on the Effective Date and the shares of Preferred Stock were issued on the Effective Date or as soon as reasonably practicable thereafter. Each party who agreed to purchase Preferred Stock was given the option to purchase Preferred Stock with regular or reduced voting rights. However, certain parties that elected to purchase Preferred Stock and were concerned that they might acquire more than 4.9% of the capital stock of Greektown Superholdings, or certain parties that qualified as “Institutional Investors” under Michigan gaming law that were concerned that they may acquire more than 14.9% of the capital stock of Greektown Superholdings, elected to receive Warrants to purchase Preferred Stock at an exercise price of $0.01 per share representing a portion of the Preferred Stock that they had elected to purchase. As a result, the holders of Senior Notes and the Put Parties own all of the outstanding equity interests of Greektown Superholdings as of the Effective Date. In addition, under the Plan, at the end of the day on the Effective Date, Greektown Holdings’ existing members’ capital (deficit) was extinguished and no distributions were made to existing members. Certain of the Put Parties assigned their Put Commitment and certain of their other rights and obligations under the Purchase and Put Agreement to other Put Parties pursuant to an Assignment and Assumption Agreement dated as of March 31, 2010.
On the Effective Date, Greektown Superholdings issued $385 million in 13% Senior Secured Notes (the “New Senior Secured Notes”) and entered into a $30 million revolving credit facility with Comerica Bank, $20 million of which is currently available for borrowings (the “Revolving Loan” and, together with the New Senior Secured Notes, the “Exit Financing”). On the Effective Date, the proceeds of the Rights Offering, the proceeds of the direct purchase of Preferred Stock, and the proceeds from the sale of the New Senior Secured Notes were used to pay all outstanding borrowings under the DIP Facility, to repay the pre-petition secured claims, and to make other payments required upon exit from bankruptcy. The proceeds from the sale of the New Senior Secured Notes remaining after the foregoing payments were made, as well as the Revolving Loan, will be used to provide ongoing liquidity to conduct our post-reorganization operations.
Note 2. Summary of Significant Accounting Policies
Presentation and Basis of Accounting
The accompanying consolidated financial statements present the financial position of Greektown Superholdings, Inc. and its wholly owned subsidiaries as of June 30, 2010. The accompanying consolidated statements of operations and cash flows of the Predecessor are presented for the three and six months ended June 30, 2010 and 2009.
On May 29, 2008 (the “Petition Date”), the Debtors filed a voluntary petition for reorganization (the “Restructuring Proceedings”) under Chapter 11 of the United States Bankruptcy Code (see Note 3). The accompanying consolidated financial statements of the Predecessor as of December 31, 2009 and for the three and six months ended June 30, 2009 have been prepared in accordance with theReorganizations topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).
TheReorganizations topic of the ASC, which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Chapter 11 petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the statement of operations. The balance sheet must distinguish prepetition liabilities subject to compromise from both those prepetition liabilities that are not subject to compromise and from post petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, reorganization items must be disclosed separately in the statement of cash flows.
FQ-9
Use of Estimates
The preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles requires management of the Company to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of property, building, and equipment, valuation allowances for receivables, tax obligations and certain other accrued liabilities. Actual results could differ from those estimates.
Casino Revenues
Greektown Casino recognizes as casino revenues the net win from gaming activities, which is the difference between gaming wins and losses. Revenues from food and beverage and hotel operations are recognized at the time of sale or upon the provision of service.
Promotional Allowances
The retail value of food, beverage, and other complimentary items furnished to customers without charge is included in revenues and then deducted as promotional allowances. The estimated costs of providing such promotional allowances for the six months ended June 30, 2010 and 2009, are approximately as follows (in thousands):
| | | | | | |
| | Predecessor
Six Months Ended
June 30, |
| | 2010 | | 2009 |
| |
|
|
|
| | | | | | |
Food and beverage | | $ | 6,045 | | $ | 4,142 |
Hotel | | | 1,489 | | | 915 |
| |
|
|
|
|
|
| | $ | 7,534 | | $ | 5,057 |
| |
|
|
|
|
|
Cash, Cash Equivalents, and Certificates of Deposit
The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Certificates of deposit represent cash deposits with original maturities in excess of three months.
Goodwill and Intangible Assets
Goodwill represents the excess of reorganization value over fair value of assets acquired and liabilities assumed in fresh start accounting. In accordance with accounting guidance related to goodwill and other intangible assets, we test for impairment of goodwill and indefinite-lived intangible assets annually in the fourth quarter of each year and in certain situations between those annual dates.
Goodwill is tested for impairment using a discounted cash flow model based on the estimated future results of the Company, discounted using the Company’s weighted-average cost of capital and market indicators of terminal year capitalization rates. The implied fair value of the Company’s goodwill is compared to the carrying value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the Company to its assets and liabilities and the amount remaining, if any, is the implied fair value of goodwill. If the implied fair value of the goodwill is less than its carrying value, then it is written down to its implied fair value.
Indefinite-lived intangible assets are not subject to amortization but are tested for impairment using a discounted cash flow approach. Intangible assets with a definite life are amortized over their useful life which is the period over which the asset
FQ-10
is expected to contribute directly or indirectly to future cash flows. Management periodically assesses the amortization period of intangible assets with definite lives based upon estimated future cash flows from related operations.
FQ-11
Inherent in the reviews of the carrying amounts of goodwill and intangible assets are various estimates. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from our estimates. If our ongoing estimates of future cash flows are not met, we may have to record additional impairment charges in future accounting periods. Our estimates of cash flows are based on the current regulatory, political and economic climates, recent operating information and budgets of the various properties where we conduct operations. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events affecting various forms of travel and access to our properties.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, certificates of deposit, accounts receivable, and accounts payable approximates fair value because of the short-term maturity of these instruments. The fair value of debt, and long-term payables approximates their carrying value, as determined by the Company, using available market information.
Income and Other Taxes
A provision for federal income taxes for the six months ended June 30, 2010 and 2009 was not recorded because the operating results presented within the statement of operations are the results of the predecessor entity, Greektown Holdings, for the three and six months ended June 30, 2010 and 2009. Greektown Holdings is a limited liability company (“LLC”) taxed as a partnership for federal tax purposes. As such, taxable income or loss is allocated to the members of Greektown Holdings based on their respective ownership percentages in accordance with the LLC agreement. Such members were not included in the financial statements prior to the implementation of the plan on June 30, 2010. Beginning June 30, 2010, the successor members after implementation of the Plan (i.e., Greektown Superholdings and Greektown Newco Sub) will be included in the financial statements such that a federal tax provision will be recorded in subsequent quarters.
On July 12, 2007, the Michigan legislature enacted the Michigan Business Tax (MBT) which is considered an income tax under the provisions of the Income Taxes topic of the FASB ASC. The MBT has a gross receipts tax and an income tax component. Due to these changes, the enactment has resulted in the recording of both a deferred tax asset and a deferred tax liability. The deferred tax asset was approximately $1.2 million and the deferred tax liability was approximately $4.9 million as of June 30, 2010. These amounts are presented net as a long-term deferred tax liability of approximately $3.7 million. The deferred tax asset is the result of future deductions allowed under the enactment provisions of the new law starting in 2015, whereas the deferred tax liability is the result of the enactment of the law and the liability resulting from the temporary differences related to capital acquisitions reversing in future periods related to the gross receipts calculation. During the six months ended June 30, 2010, the Company recorded a deferred expense for MBT of approximately $1.4 million and a current expense for MBT of approximately $1.3 million. Included in taxes payable is an estimated liability for 2010 MBT of approximately $800,000 and an estimated income tax contingency of $6.5 million related to certain potential taxes that could be assessed in connection with the enactment of the Plan.
Impairment or Disposal of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of theProperty, Plant, and Equipment topic of the FASB ASC. The Property, Plant, and Equipment topic of the FASB ASC requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.
FQ-12
Note 3. Emergence from Chapter 11
Plan of Reorganization
Pursuant to the Plan, on the Effective Date, a series of restructuring transactions were consummated through which the Company emerged from bankruptcy and the Senior Noteholders of the Predecessor acquired the equity ownership of the Company through (a) the issuance of shares of its Common and Preferred Stock and warrants to purchase additional shares of its Preferred Stock and (b) the assumption of certain liabilities of the Predecessor incurred after the Petition Date to the extent not paid on or prior to the Effective Date.
| | |
| The Plan also provided for, among other things: |
| | |
| • | the cancellation of the Senior Notes in the amount of $185 million; |
| | |
| • | the cancellation of pre-petition accounts payable, in the amount of $14.2 million; |
| | |
| • | the cancellation of approximately $65.0 million of other indebtedness pertaining to pre-petition obligations; |
| | |
| • | payment in full of the DIP Financing in the amount of $193.4 million and related interest; |
| | |
| • | payment in full of the pre-petition Secured Debt in Default in the amount of $367.3 million; |
| | |
| • | reinstatement, payment in full, or satisfaction in full by return of collateral of all other Allowed Claims (as defined in the Plan); and |
| | |
| • | the entry into of certain Exit Financing arrangements, which consisted of (i) the New Senior Secured Notes and (ii) the Revolving Loan. |
Fresh Start Consolidated Balance Sheet
In accordance with theReorganizations topic of the ASC, the Company adopted fresh-start reporting upon the Effective Date. The Company was required to apply the provisions of fresh-start reporting to its financial statements because the reorganization value of the assets on the emerging entity immediately before the date of confirmation was less than the total of all post-petition liabilities and allowed claims and the holders of the existing voting shares of the Predecessor’s common stock immediately before confirmation received less than 50 percent of the voting shares of the emerging entity. Under the accounting guidance, fresh-start reporting is required on the date on which the plan of reorganization is confirmed by the Bankruptcy Court, but further provides that fresh-start reporting should not be applied until all material conditions to the Plan are satisfied. All material conditions to the Plan were satisfied on June 30, 2010, the Effective Date.
FQ-13
Fresh-start reporting generally requires resetting the historical net book value of assets and liabilities to fair value by allocating the entity’s enterprise value as set forth in the Plan to its assets and liabilities pursuant to accounting guidance related to business combinations as of the Effective Date. As set forth in the disclosure statement, relating to the Plan, that was confirmed by the Bankruptcy Court on December 4, 2009, the enterprise value was estimated to be in the range of $626.7 million to $696.2 million, with a mid-point estimate of $662.7 million, based on financial projections. The enterprise value was estimated using various valuation methods, including (i) a calculation of the present value of projected free cash flows and a terminal value, using a range of discount rates (the “Discounted Cash Flow Analysis”); (ii) a comparison of the financial data of the reorganized Debtors with comparable publicly traded gaming companies (the “Comparable Companies Analysis”); and (iii) an analysis of comparable valuations indicated by precedent mergers and acquisitions transactions in the gaming industry (the “Precedent Transactions Analysis”).
The enterprise value using the Discount Cash Flow Analysis was determined using the Predecessor’s financial projections for the periods through 2013. The four year compounded annual growth rate used in the projections was 2.7%. These financial projections were provided in the Plan disclosure statement and included anticipated changes associated with the Company’s reorganization plans, general market conditions, as well as other pertinent economic factors. The discount rate applied was in the range of 9% to 10% which was calculated using a weighted average cost of capital analysis based on comparable statistics of the Company’s peer group. The present value of all cash flows after 2013 were calculated using terminal values which were calculated by applying exit multiples ranging from 7.0x to 8.0x the 2013 financial projections which was then discounted in the range of 9% to 10%. Exit multiples ranging from 7.0x to 8.0x were based upon comparable company EBITDA multiples of the Company’s peer group.
Based upon an evaluation of relevant factors used in determining the range of enterprise value, including an assessment of the Company’s expected future cash flow projections, the Company concluded that the midpoint enterprise value estimate of $662.7 million should be used for fresh start reporting purposes, as it most closely approximately fair value.
In accordance with fresh start reporting, the Company’s enterprise value has been allocated to existing assets using the measurement guidance provided in accounting guidance related to business combinations. In addition, liabilities, other than deferred taxes, have been recorded at the present value of amounts estimated to be paid. Finally, the Predecessor’s accumulated deficit has been eliminated and the Company’s new debt and equity have been recorded at fair value in accordance with the Plan. Deferred taxes have been determined in accordance with accounting guidance related to income taxes.
Estimates of fair value represent the Company’s best estimates, which are based on industry data and trends and by reference to relevant market rates and transactions, and discounted cash flow valuation methods, among other factors. The determination of the fair value of assets and liabilities is subject to significant estimation and assumptions and there can be no assurance that the estimates, assumptions and values reflected in the valuations will be realized and actual results could vary materially.
FQ-14
The implementation of the Plan and the effects of the consummation of the transactions contemplated therein, which included the settlement of various liabilities, repayment of the Predecessor’s indebtedness, incurrence of new indebtedness, issuance of new equity securities and the adoption of fresh-start reporting in the Company’s consolidated balance sheet as of June 30, 2010 are as follows (in thousands):
| | | | | | | | | | | | | | |
| | Predecessor/
Historical
Greektown
Holdings,
L.L.C. | | Plan Effect
Adjustments
(a) | | | Fresh Start
Adjustments
(g) | | | Greektown
Superholdings, Inc.
As Adjusted |
| |
| |
| | |
| | |
|
| | (In thousands, except per share amounts) |
Assets | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 31,282 | | $ | (17,686 | ) | (b) | $ | — | | | $ | 13,596 |
Certificates of deposit | | | 532 | | | — | | | | — | | | | 532 |
Accounts receivable—gaming, net | | | 1,692 | | | — | | | | — | | | | 1,692 |
Accounts receivable—other, net | | | 921 | | | 375 | | (c) | | — | | | | 1,296 |
Notes receivable | | | 2,000 | | | — | | | | — | | | | 2,000 |
Inventories | | | 413 | | | — | | | | — | | | | 413 |
State of Michigan gaming tax refundable | | | 5,743 | | | — | | | | — | | | | 5,743 |
Prepaid expenses and other current assets | | | 13,900 | | | 850 | | (d) | | (2,026 | ) | (e) | | 12,724 |
Current portion of financing fees | | | — | | | 3,308 | | (f) | | — | | | | 3,308 |
| |
|
| |
|
| | |
|
| | |
|
|
Total current assets | | | 56,483 | | | (13,153 | ) | | | (2,026 | ) | | | 41,304 |
Property, building and equipment, net | | | 467,349 | | | — | | | | (127,795 | ) | (h) | | 339,554 |
Financing fees, net | | | 17,309 | | | (4,415 | ) | (f) | | — | | | | 12,894 |
Deposits and other assets | | | 30 | | | — | | | | — | | | | 30 |
Other identifiable intangible assets: | | | | | | | | | | | | | | |
Trade names | | | — | | | — | | | | 26,300 | | (i) | | 26,300 |
Rated player relationships | | | — | | | — | | | | 69,000 | | (i) | | 69,000 |
Casino development rights | | | — | | | — | | | | 117,800 | | (i) | | 117,800 |
| |
|
| |
|
| | |
|
| | |
|
|
Total other identifiable intangible assets | | | — | | | — | | | | 213,100 | | | | 213,100 |
Goodwill | | | — | | | — | | | | 108,475 | | (j) | | 108,475 |
| |
|
| |
|
| | |
|
| | |
|
|
Total assets | | $ | 541,171 | | $ | (17,568 | ) | | $ | 191,754 | | | $ | 715,357 |
| |
|
| |
|
| | |
|
| | |
|
|
FQ-15
| | | | | | | | | | | | | | | |
| | Predecessor/ Historical
Greektown
Holdings,
L.L.C. | | Plan Effect
Adjustments
(a) | | | Fresh Start
Adjustments
(g) | | | Greektown
Superholdings, Inc.
As Adjusted | |
| |
| |
| | |
| | |
| |
| | (In thousands, except per share amounts) | |
Liabilities and shareholders’/members’ equity (deficit) | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | |
Debtor-in-possession financing | | $ | 193,415 | | $ | (193,415 | ) | (k) | $ | — | | | $ | — | |
Secured debt in default | | | 367,322 | | | (367,322 | ) | (l) | | — | | | | — | |
Accounts payable | | | 11,569 | | | — | | | | — | | | | 11,569 | |
Accrued income taxes | | | 760 | | | 6,470 | | (m) | | — | | | | 7,230 | |
Unsecured distribution liability | | | — | | | 10,000 | | (n) | | — | | | | 10,000 | |
Notes payable | | | 977 | | | — | | | | — | | | | 977 | |
Accrued expenses and other liabilities | | | 11,285 | | | 2,650 | | (o) | | — | | | | 13,935 | |
Accrued interest | | | 5,441 | | | (5,441 | ) | (k) | | | | | | — | |
| |
|
| |
|
| | |
|
| | |
|
| |
Total current liabilities | | | 590,769 | | | (547,058 | ) | | | — | | | | 43,711 | |
Long-term liabilities: | | | | | | | | | | | | | | | |
New senior secured revolving credit facility | | | — | | | — | | (p) | | — | | | | — | |
New senior secured notes, net of discount | | | — | | | 362,605 | | (q) | | — | | | | 362,605 | |
Obligation under capital lease | | | 786 | | | — | | | | 1,736 | | (r) | | 2,522 | |
Deferred Michigan Business Tax, net | | | 3,720 | | | — | | | | — | | | | 3,720 | |
| |
|
| |
|
| | |
|
| | |
|
| |
Total long-term liabilities | | | 4,506 | | | 362,605 | | | | 1,736 | | | | 368,847 | |
Liabilities subject to compromise | | | 264,987 | | | (264,987 | ) | (s) | | — | | | | — | |
Shareholders’ equity/members’ equity (deficit) | | | (319,091 | ) | | 431,872 | | (t) | | 190,018 | | (u) | | 302,799 | |
| |
|
| |
|
| | |
|
| | |
|
| |
Total liabilities and shareholders’ equity/members’ equity (deficit) | | $ | 541,171 | | $ | (17,568 | ) | | $ | 191,754 | | | $ | 715,357 | |
| |
|
| |
|
| | |
|
| | |
|
| |
Explanatory notes:
(a)—Represents amounts recorded as of the Effective Date for the consummation of the Plan, including the settlement of liabilities subject to compromise, the satisfaction of the DIP financing and pre-petition secured debt in default, the issuance of new indebtedness and related cash payments, the issuance of Common and Preferred Stock and warrants to purchase Preferred Stock, and other transaction associated with the consummation of the Plan.
(b)—Reflects the sources and uses from the Plan, the Exit Financing, the Rights Offering and the cash used as detailed in the following table:
| | | |
Sources of cash: | | | |
Proceeds from issuance of New Senior Secured Notes—series A (net of 5% original issue discount) | | $ | 266,159 |
Proceeds from issuance of New Senior Secured Notes—series B (net of 8% original issue discount) | | | 96,446 |
Net Proceeds from Rights Offering (net of Cash Put Premium) | | | 196,000 |
On-hand cash and cash equivalents | | | 17,686 |
| |
|
|
Total sources of cash | | $ | 576,291 |
| |
|
|
FQ-16
| | | |
Uses of cash: | | | |
Repayment of debtor-in-possession financing | | $ | 193,415 |
Repayment of secured debt in default | | | 367,322 |
Repayment of accrued interest on debtor-in-possession financing | | | 5,389 |
Advances to fund litigation trust under the Plan | | | 375 |
Payment for pre-paid title insurance fees | | | 850 |
Payment of fees related to the emergence transaction | | | 8,940 |
| |
|
|
Total uses of cash | | $ | 576,291 |
| |
|
|
(c)—Represents an adjustment to record a non-recourse loan in the amount of $375,000 which is required to be loaned from Greektown Superholdings to fund the fees, expenses and costs of a liquidating trust established pursuant to Section 4.12 of the Plan.
(d)—Represents prepaid title-insurance fees paid at Effective Date in connection with the consummation of the Plan.
(e)—Represents an adjustment to revalue prepaid expenses at fair market value as of the Effective Date in accordance with the adoption of fresh start reporting requirements.
(f)—Represents an adjustment to eliminate the deferred financing fees, net of accumulated amortization of the Predecessor on the Effective Date and establish the new deferred financing fees in connection with the Exit Financing.
(g)—Represents the adjustments of assets and liabilities to fair value, or other measurement as specified in accounting guidance related to business combinations, in conjunction with the adoption of fresh start reporting.
FQ-17
(h)—Represents an adjustment to record property, building and equipment at estimated fair value on June 30, 2010, as set forth in the table below. The determination of fair value of assets and liabilities is subject to significant estimation and assumptions and there can be no assurances that the estimates, assumptions and values reflected in the valuations will be realized and actual results could vary materially. The allocation of the enterprise value is subject to additional adjustments to the extent that improved information on assets and liability valuations becomes available.
| | | | | | | | | | |
(In $’000) | | Net
Book
Value | | Estimated
Fair Value | | Adjustment | |
| |
| |
| |
| |
Property, building and equipment: | | | | | | | | | | |
Land | | $ | 104,191 | | $ | 45,400 | | $ | (58,791 | ) |
Building and improvements | | | 331,173 | | | 245,441 | | | (85,732 | ) |
Gaming equipment and furnishings | | | 11,222 | | | 19,774 | | | 8,552 | |
Non-gaming equipment and furnishings | | | 13,122 | | | 21,298 | | | 8,176 | |
Construction in progress | | | 7,641 | | | 7,641 | | | — | |
| |
|
| |
|
| |
|
| |
Total property, building and equipment | | $ | 467,349 | | $ | 339,554 | | $ | (127,795 | ) |
| |
|
| |
|
| |
|
| |
(i)—Represents an adjustment to record other identifiable intangible assets related to Greektown Holdings’ trade names, rated player relationships and casino development rights under the Development Agreement at estimated fair value in connection with fresh start reporting. The determination of fair value of assets and liabilities is subject to significant estimation and assumptions and there can be no assurances that the estimates, assumptions and values reflected in the valuations will be realized and actual results could vary materially. The preliminary allocation of the enterprise value is subject to additional adjustments to the extent that improved information on assets and liability valuations becomes available.
FQ-18
(j)— Represents the establishment of goodwill as a result of fresh start reporting.
(k)—Represents an adjustment to record the payment on the Effective Date of the principal amount of the DIP Facility, inclusive of PIK interest, cash interest from the proceeds of the Exit Financing and the Rights Offering.
(l)—Represents an adjustment to record the payment on the Effective Date of the amount of the pre-petition senior secured obligations of the Debtors and accrued interest thereon from the proceeds of the Exit Financing and the Rights Offering.
(m)—This adjustment reflects the MBT impact of the consummation of the plan.
FQ-19
(n)—Represents an adjustment to record the $10 million unsecured settlement obligation reflecting the treatment provided for under the Plan whereby general unsecured claimants will receive their pro rata share of $10 million in cash payable over 4 quarterly installments during the initial year following the Effective Date.
(o)—Represents an adjustment to record liabilities for certain pre-petition claims that were not settled at the Effective Date.
(p)—We entered into the Revolving Loan (a $30 million revolving credit facility, $20 million of which is currently available) on the Effective Date. The Revolving Loan bears interest at an annual rate of LIBOR plus 3.50% or the higher of Comerica Bank’s prime reference rate and 3.25%. Upon the discharge and release of existing mortgages on a small parcel of real property underlying a portion of our casino operations securing indebtedness owed by third parties, the amount available under the Revolving Loan will increase to $30 million, and the Revolving Loan will bear interest at an annual rate (depending on a leverage ratio) of LIBOR plus 1.75% to 2.25% or the higher of Comerica Bank’s prime reference rate and 2.5% minus 0.5% to 1%. The Revolving Loan was undrawn as of the Effective Date.
(q)— Represents an adjustment to record the New Senior Secured Notes, net of original issue discounts as summarized in the table below.
| | | | | | | | | | | | |
| | Face
Amount
of Notes | | Original
Issue
Discount
Rate | | Original
Issue
Discount | | Net
Proceeds |
| |
| |
| |
| |
|
Series A Senior Secured Notes | | $ | 280,167 | | | 5.0 | % | $ | 14,008 | | $ | 266,159 |
Series B Senior Secured Notes | | | 104,833 | | | 8.0 | % | | 8,387 | | | 96,446 |
| |
|
| | | | |
|
| |
|
|
Total | | $ | 385,000 | | | | | $ | 22,395 | | $ | 362,605 |
| |
|
| | | | |
|
| |
|
|
(r)—Represents an adjustment to revalue capital lease obligations at fair market value as of the Effective Date in accordance with the adoption of fresh start reporting requirements.
(s)—Represents an adjustment to eliminate the balances of liabilities subject to compromise, reflecting the treatment provided for under the Plan whereby general unsecured claimants will receive their pro rata share of $10 million in cash payable over 4 quarterly installments during the initial year following the Effective Date in full satisfaction of general unsecured claims. Liabilities subject to compromise as of emergence are detailed in the following table.
| | | |
Pre-petition accounts payable | | $ | 14,210 |
Pre-petition amounts due to parent | | | 1,350 |
Unsecured Notes | | | 185,000 |
Accrued interest on Unsecured Notes | | | 51,376 |
Lawsuit settlement obligation | | | 12,303 |
Accrued interest on Lawsuit settlement obligation | | | 748 |
| |
|
|
Total | | $ | 264,987 |
| |
|
|
(t)—This adjustment reflects the entries necessary to record the cancellation of previous ownership interests and the elimination of the accumulated deficit in Predecessor, in accordance with the adoption of fresh start reporting requirements.
FQ-20
(u)—Represents adjustment to equity related to fresh start reporting.
Reorganization items and fresh start adjustments
Reorganization items and fresh start adjustments represent amounts incurred as a direct result of the Chapter 11 cases, the consummation of the Plan and the adoption of fresh start accounting, and were comprised of the following for the three- and six- month periods ended June 30, 2010 and 2009 (in thousands):
| | | | | | | | | | | | | |
| | Predecessor | |
| | Three months ended June 30, | | Six months ended June 30, | |
| | 2010 | | 2009 | | 2010 | | 2009 | |
| |
|
|
|
|
|
|
|
|
Non-cash reorganization items and fresh start adjustments: | | | | | | | | | | | | | |
Discharge of liabilities subject to compromise | | $ | 130,937 | | $ | — | | $ | 130,937 | | $ | — | |
Revaluation of assets and liabilities | | | 190,018 | | | — | | | 190,018 | | | — | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total non-cash reorganization items and fresh start Adjustments | | | 320,955 | | | — | | | 320,955 | | | — | |
Professional fees and expenses: | | | | | | | | | | | | | |
Legal professional fees | | | (6,386 | ) | | (1,685 | ) | | (12,336 | ) | | (4,888 | ) |
Consulting professional fees | | | (5,039 | ) | | (2,748 | ) | | (6,758 | ) | | (5,304 | ) |
U.S. Trustee fees and other expenses | | | (65 | ) | | (32 | ) | | (509 | ) | | (63 | ) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Total professional fees and expenses | | | (11,490 | ) | | (4,465 | ) | | (19,603 | ) | | (10,255 | ) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on reorganization items and fresh start adjustments | | $ | 309,465 | | $ | (4,465 | ) | $ | 301,352 | | $ | (10,255 | ) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees include financial advisory, consulting, tax, legal, real estate and valuation services, among other items, that are directly associated with the Chapter 11 reorganization process. The Company continues to incur expenses related to the Predecessor’s Chapter 11 cases, which include professional fees that were classified as reorganization items by the Predecessor.
Note 4. Goodwill & Other Identifiable Intangible Assets
Goodwill represents the excess of the reorganization value of Greektown Superholdings over the fair value of tangible and identified intangible net assets upon emergence from bankruptcy. Greektown recorded goodwill of $108.5 million upon the application of fresh start reporting, as part of the fresh start adjustments discussed in Note 3.
Other identifiable intangible assets consist of the following (in thousands):
| | | | | |
| | Estimated
Fair Value | | Assumed
Useful Life |
| |
| |
|
Other identifiable intangible assets: | | | | | |
Trade names | | $ | 26,300 | | Indefinite |
Rated player relationships | | | 69,000 | | 5 years |
Casino development rights | | | 117,800 | | Indefinite |
| |
|
| | |
Total other identifiable intangible assets | | $ | 213,100 | | |
| |
|
| | |
Upon the Effective Date, in connection with fresh start reporting, the Company recognized Greektown Holdings’ trade names, rated player relationships and casino development rights under the Development Agreement at estimated fair value as
FQ-21
set forth in the table above, and as part of the fresh start adjustments discussed in Note 3. Intangible assets related to the Plan and Greektown Superholdings were valued by valuation professionals who used income and cost based methods, as appropriate. The Greektown trade name was valued based on the relief from royalty method, which is a function of projected revenue, the royalty rate that would hypothetically be charged by a licensor of an asset to an unrelated licensee and a discount rate. The royalty rate was based on factors such as age, market competition, absolute and relative profitability, market share and prevailing rates from similar assets to reach a 1% royalty rate. The discount rate applied was 12.5%, based on the weighted average cost of capital of the properties benefiting from the trade name. Casino development rights were valued based on the Greenfield method, which is a function of the cost to build a new casino operation, the buildout period, and projected cash flows attributable to the casino once operational at a discount rate. The projected cash flows assumed a compound revenue growth rate of 2.7% and an effective tax rate of 40%. The discount rate assumed was 11.5% based on the weighted average cost of capital for the respective property. The value assigned to the rated player relationships was based on the present value of future earnings using the replacement cost method based on internally developed estimates. The determination of fair value of assets and liabilities is subject to significant estimation and assumptions and there can be no assurances that the estimates, assumptions and values reflected in the valuations will be realized and actual results could vary materially. In accordance with accounting guidance for business combinations, the preliminary allocation of the enterprise value is subject to additional adjustments to the extent that improved information on assets and liability valuations becomes available.
We comply with the provisions of the Intangible Assets—Goodwill and Other topic of the ASC, which provides guidance on how identifiable intangible assets should be accounted for upon acquisition and subsequent to their initial financial statement recognition. This topic requires that identifiable intangible assets with indefinite lives be capitalized and tested for impairment at least annually by comparing the fair values of those assets with their recorded amounts. Accordingly, we perform our impairment test as of October 1 of each year by comparing their estimated fair value to the related carrying value as of that date.
Note 5. Debt
Predecessor
Long term debt and notes payable of the Predecessor consisted of the proceeds generated by Holdings as borrower under a seven-year term loan agreement to finance the payment for the Casino’s existing credit facilities that were expiring. Also effective April 2007, Holdings’ existing five-year revolving credit facilities (including letter-of-credit facilities) were increased to $125 million. The funds received by Holdings under these credit facilities were advanced to the Casino under terms which were similar to those contained in Holdings’ agreements with its lender.
On June 9, 2008, Holdings and the Casino entered into a $150 million DIP Credit Facility (the DIP Financing) in order to finance the remainder of the Expanded Complex and provide funding for working capital purposes; the DIP Financing included a delayed draw term loan agreement for $135 million and a revolving credit facility for $15 million.
The DIP Financing was amended and restated on February 20, 2009 (Amended DIP Financing) to provide up to an additional $46 million in two delayed draw term loans. Of the funds received from the Amended DIP Financing, $26 million could only be used for construction related expenses, while up to $20 million of the remaining commitment could be used to pay operational and construction related expenses and was available to the Casino in increments upon achieving certain milestones as set forth in the agreement. In addition to providing additional borrowings, the Amended DIP Financing adjusted the rate of interest on the delayed draw term loan and revolving credit facility as provided by the original DIP Financing from the Base Rate plus 5.25% per annum to the Base Rate plus 7.25% per annum. The interest rate applicable to the additional delayed draw term loan is the Base Rate plus 5.25%. The Amended DIP Financing restated the covenant requirements which the Company was required to comply with under the terms of the agreement.
The Amended DIP Financing also set forth an additional paid-in-kind (PIK) amount that was accrued and then added to the then outstanding DIP Financing. The PIK was 5.00% of the outstanding amount of the original DIP Financing and had the same maturity date as the DIP Financing.
On December 29, 2009, the Predecessor executed the Senior Secured Superpriority Debtor-In-Possession credit agreement (New DIP Credit Facility), which provided maximum aggregate principal of $210 million. The New DIP Credit Facility consists of a $190 million Term A loan and a $20 million delayed draw term loan; the interest rate associated with these borrowings was 14.50% of which 11.00% was cash interest and 3.50% was PIK. Under the terms of the New DIP Credit
FQ-22
Facility, the Term A Loan was utilized to fund the repayment in full the original DIP financing and the Amended DIP Financing.
The New DIP Credit Facility contained covenants including limitations on additional indebtedness, capital expenditures, mergers or acquisitions, dispositions of assets, loans and advances, and transactions with affiliates. Further, the Agreement required the Casino to maintain specific financial ratios including monthly minimum earnings before interest, taxes, depreciation, amortization, and restructuring costs (EBITDAR), as defined in the New DIP Credit Facility.
As security for the term loan and any amounts owed under the revolving credit facility, Holdings had pledged its 100% equity interest in the Casino. Further, the Casino also assigned a security interest in all of its assets as collateral for the above agreements, and had guaranteed repayment of these borrowings.
Except as permitted under the terms of New DIP Credit Facility and other existing Credit Facilities, the Company was not permitted to incur any other indebtedness. On June 30, 2010, the Company repaid the New DIP Financing as part of the plan of reorganization. Please see Note 3 for more detail.
Other
Predecessor also borrowed $185 million in December 2005 under an unsecured note arrangement to finance its operations and meet its liability and equity commitments. The maturity date of the note was December 1, 2013. As a result of the Chapter 11 filing the notes became unsecured pre-petition liabilities subject to compromise and were settled upon effectiveness of the Noteholder Plan (see Note 3).
Effective January 19, 2006 and September 28, 2007, Predecessor entered into interest rate swap agreements with notional amounts of $195 million and $70 million, respectively. The purpose of these interest rate swaps was to manage the cash flows related to well-defined interest rate costs and the risk associated with variable rate debt. These financial instruments were terminated as a result of the Chapter 11 filing. On the date of termination, the liabilities under the swap agreements became fixed at $9.3 million related to the $195 million interest rate swap agreement and $2.8 million related to the $70 million interest rate swap agreement. These liabilities were recorded by Predecessor and were included in liabilities not subject to compromise. Interest on these obligations is accrued as PIK at a 6.75% interest rate. Due to the effectiveness of the Noteholder Plan these liabilities were settled (see Note 3).
Successor
Exit Facility
Purchase Agreement; Indenture; Notes
On June 25, 2010, the Company entered into a purchase agreement (the “Purchase Agreement”), by and between the Company and Goldman, Sachs & Co. (the “Initial Purchaser”), pursuant to which the Company agreed to issue and sell, and the Initial Purchaser agreed to purchase, $280.2 million principal amount of its Series A 13% Senior Secured Notes due 2015 (the “Series A Notes”) and $104.8 million principal amount of its Series B 13% Senior Secured Notes due 2015 (the “Series B Notes” and, together with the Series A Notes, the “Notes”) which are guaranteed (the “Guarantees”) by substantially all of the Company’s domestic subsidiaries (the “Guarantors” and, together with the Company, the “Obligors”) which subsidiaries executed a joinder to the Purchase Agreement on June 30, 2010.
On the Effective Date, the Company consummated the issuance and sale of the Notes under the Purchase Agreement in a private placement to qualified institutional buyers in the United States in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States in reliance on Regulation S under the Securities Act.
The Notes were issued pursuant to an indenture, dated as of June 30, 2010 (the “Indenture”), among the Company, the Guarantors, and Wilmington Trust FSB, as trustee.
FQ-23
Maturity:The Notes mature on July 1, 2015. The Notes bear interest at a rate of 13.0% per annum. Interest on the Notes is payable semi-annually on January 1 and July 1 of each year, beginning on January 1, 2011. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
Guarantees:The obligations of the Obligors under the Notes are fully and unconditionally guaranteed, jointly and severally, on a second-priority senior secured basis by all of the Company’s current and future domestic subsidiaries, subject to certain exceptions.
Security:The Notes and the related Guarantees secured by a second-priority lien on (i) substantially all of the properties and assets of the Company and each Guarantor, whether now owned or hereafter acquired, except certain excluded assets and (ii) a pledge of all the capital stock of all the subsidiaries of the Company, subject to certain limitations (in each case subject to certain permitted prior liens and liens securing certain permitted priority lien debt, including borrowings under the Company’s revolving credit facility described below).
Optional Redemption:At any time prior to January 1, 2013, the Company may on any one or more occasions redeem all or a part of the Notes, upon not less than 30 nor more than 60 days’ notice, at a redemption price equal to 100% of the principal amount of the Notes redeemed, plus a specified premium as of, and accrued and unpaid interest and special interest, if any, to the date of redemption, subject to the rights of holders of Notes on the relevant record date to receive interest due on the relevant interest payment date. On or after January 1, 2013, the Company may redeem some or all of the Notes at any time at the redemption prices specified in the Indenture plus accrued and unpaid interest and special interest, if any, to the applicable redemption date.
Mandatory Redemption: The Notes are subject to mandatory disposition or redemption following certain determinations by applicable gaming regulatory authorities.
The Notes are subject to mandatory redemption, at 103% of their principal amount plus accrued and unpaid interest and special interest, if the Company has consolidated excess cash flow, as defined in the Indenture, for any fiscal year commencing with the fiscal year beginning on the date of the Indenture and ending December 31, 2010.
If the Company experiences certain change of control events, the Company must offer to repurchase the Notes at 101% of their principal amount, plus accrued and unpaid interest and special interest, if any, to the applicable repurchase date. If the Company sells assets or experiences certain events of loss under certain circumstances and does not use the proceeds for specified purposes, the Company must offer to repurchase the Notes at 100% of their principal amount, plus accrued and unpaid interest and special interest, if any, to the applicable repurchase date.
Covenants:The Indenture contains covenants limiting the ability of Greektown and/or its direct and indirect subsidiaries (and in certain instances Greektown Superholdings) to, among other things, (i) engage in businesses other than the operation of Greektown Casino; (ii) incur or guarantee additional indebtedness; (iii) create liens; (iv) make certain investments; (v) pay dividends on or make payments in respect of capital stock; (vi) consolidate or merge with other companies; (vii) sell certain assets; (viii) enter into transactions with affiliates; (ix) agree to negative pledge clauses and (x) enter into sales and leasebacks. Failure to comply with these covenants could result in a default under the Indenture unless Greektown obtains a waiver of, or otherwise mitigates, the default.
FQ-24
Events of Default:The Indenture for the New Senior Secured Notes contains events of default, including (i) failure to pay principal, interest, fees or other amounts when due; (ii) breach of any covenants which are not cured within a stated cure period; (iii) default under certain other indebtedness; (iv) becoming subject to certain judgments; (v) failure to keep liens or security interests valid; (vi) certain events of bankruptcy insolvency; (vii) impairment of any collateral to the loans; (viii) ceasing to own the casino complex; or (ix) loss of gaming or certain other licenses, or the legal authority to conduct gaming activities. A default could result in an acceleration of the New Senior Secured Notes and acceleration of amounts outstanding thereunder.
FQ-25
Revolving Credit Agreement
On the Effective Date, the Company entered into a Credit Agreement with Comerica Bank (the “Credit Agreement”) for the Revolving Loan.
General:The Credit Agreement provides for the Revolving Loan, which is a three and one-half year revolving credit facility in an aggregate principal amount initially of up to $20 million (increasing to $30 million upon the discharge and release of existing mortgages on the Trappers Parcel (as defined below) securing indebtedness owed by third parties (the “Trappers Mortgage Release”), including $5 million for the issuance of standby letters of credit. The maximum expiration of individual letters of credit is twelve months after the issuance thereof or, if earlier, the maturity of the Revolving Loan.
Security and Guarantees. The Revolving Loan is secured by a perfected first priority lien and security interest on all the assets of the Company and all its direct and indirect subsidiaries, excluding, among other things, the Company’s gaming license.
Interest and Fees. Borrowings under the Revolving Loan initially bear interest at an annual rate of LIBOR plus 3.50% or the higher of Comerica Bank’s prime reference rate and 3.25%. Upon the Trappers Mortgage Release, the Revolving Loan will bear interest at an annual rate of LIBOR plus 1.75% (if the Leverage Ratio (as defined below) is less than 4 to 1) or 2.25% (if the Leverage Ratio is greater than or equal to 4 to 1) or at an annual rate of (a) the higher of (i) Comerica Bank’s prime reference rate and (ii) 2.50% minus (b) 0.50% (if the Leverage Ratio is greater than or equal to 4 to 1) or 1% (if the Leverage Ratio is less than 4 to 1). There is a facility fee of 0.50% per annum on the aggregate revolving credit commitment amount payable quarterly in arrears commencing on July 1, 2010 (in respect of the prior fiscal quarter or portion thereof), and on the first day of each fiscal quarter thereafter. There is also a non-refundable letter of credit fee of 3.50% per annum on the face amount of each letter of credit payable quarterly in advance. Upon the Trappers Mortgage Release, this rate drops to 1.75% (if the Leverage Ratio is less than 4 to 1) or 2.25% (if the Leverage Ratio is greater than or equal to 4 to 1). “Leverage Ratio” means as of the last day of any fiscal quarter of the Company, the ratio of an amount equal to, on a consolidated basis, the sum of all of the funded debt of the Company and its subsidiaries as of such date, excluding all subordinated debt, to EBITDA (as defined below) for the four fiscal quarters then ending. Adjustments to the interest rate and the applicable letter of credit fee rate are implemented quarterly based on the Leverage Ratio.
Prepayment. The Revolving Loan requires mandatory prepayments in an amount equal to (i) 100% of the net proceeds of the permitted sale of assets (subject to certain exclusions and permitted reinvestments), (ii) 100% of the net proceeds of any recovery from insurance arising from an event of loss (subject to certain exclusions and permitted reinvestments), and (iii) 100% of the net proceeds for the issuance of any debt or equity securities (subject to certain exclusions). Except with respect to certain asset sales, mandatory prepayments do not reduce revolving credit commitments.
Certain Covenants. The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions and materiality thresholds, the ability of the Company and its subsidiaries to sell assets and property, incur additional indebtedness, create liens on assets, make investments, loans, guarantees or advances, make distributions, dividends or payments on account of, or purchase, redeem or otherwise acquire, any of the Company’s capital stock, prepay certain indebtedness, engage in acquisitions, mergers or consolidations, engage in transactions with affiliates, amend agreements governing the Company’s indebtedness, including the Notes, make capital expenditures, enter into negative pledges, change fiscal year and change the Company’s or any Subsidiary’s name, jurisdiction of incorporation or location at which any Collateral is stored. The Company has also agreed to complete the Trappers Mortgage Release within one year following the date of the Revolving Loan.
FQ-26
In addition, the Credit Agreement contains a financial covenant pursuant to which the Company must maintain as of each Test Date, a Fixed Charge Coverage Ratio of not less than 1.05 to 1 (measured from the Effective Date until the applicable determination date for all fiscal quarters ending on or before March 31, 2011 and thereafter, on a trailing twelve month basis). “Test Date” means (i) the last day of each fiscal year of the Company, and (ii) the last day of each fiscal quarter, if the sum of the average daily outstanding advances plus the aggregate undrawn face amount of all issued, outstanding and unexpired letters of credit under the Revolving Loan exceeded $7.5 million during such quarter or if there are any advances outstanding under the Revolving Loan on the last day of such fiscal quarter. “Fixed Charge Coverage Ratio” means EBITDA divided by the sum, without duplication, of (i) cash interest expense, (ii) principal payments, (iii) cash income tax payments, (iv) restricted payments paid or payable in cash, (v) unfinanced capital expenditures, and (vi) capitalized lease payments. For the September 30, 2010, December 31, 2010 and March 31, 2011 measuring periods, unfinanced capital expenditures will be assumed to be the lesser of (x) actual unfinanced capital expenditures and (y) $3 million, $6 million and $9 million, respectively. “EBITDA” means, for any period of determination, net income for the applicable period plus, without duplication and only to the extent deducted in determining net income, (i) depreciation and amortization expense for such period, (ii) interest expense, whether paid or accrued, for such period, (iii) all income taxes for such period, and (iv) certain unusual and non-recurring charges occurring within twelve months of effectiveness of the Revolving Loan.
Event of Default.The Revolving Loan contains certain events of default, including failure to make required payments; breaches of covenants which are not cured within a stated cure period or any representations and warranties in any material adverse respect; defaults under certain other indebtedness; certain judgments against the Company for the payment of money; failure to keep any material provision of any loan document valid, binding and enforceable; a change of control; an event of bankruptcy or insolvency; loss of the Company’s gaming licenses to the extent such loss is reasonably likely to cause a material adverse effect; the Company becomes the subject of certain enforcement actions if such enforcement action has not been dismissed or terminated within 60 days after commencement; or the Company becomes prohibited from conducting gaming activities for a period of greater than thirty consecutive days. A default could result in, among other things, a termination of the revolving credit commitment and acceleration of amounts outstanding under the Revolving Loan.
Trappers Mortgage Release. A small parcel of real property underlying a portion of our casino operations (the “Trappers Parcel”) is encumbered by mortgages which secure indebtedness owed to Greektown Casino, L.L.C. (“Casino”) and third parties. While the Company believes that these third party liens are discharged pursuant to the terms of the Plan, the liens established by these mortgages were not removed from the title record or insured by the title company prior to the Effective Date. Historical subordination agreements from the third parties holding such mortgages exist whereby such parties have agreed not to exercise remedies until Casino has exercised such remedies under a mortgage in favor of Casino on the same parcel. Further, the Company and its subsidiaries have agreed to collaterally assign the mortgage in favor of Casino as well as a mortgage under which a pre-bankruptcy affiliate of the Company is the borrower (but as to which Casino is also the beneficiary of a collateral assignment to secure the mortgage in favor of us) to the lenders under the Revolving Loan on a first-priority basis and to the holders of the Notes on a second-priority basis. However, if the subordination agreements and the collateral assignment of the mortgage in favor of Casino and under which Casino’s pre-bankruptcy affiliate is the borrower were determined not to be enforceable, such mortgages could be deemed to have a higher priority than the mortgage on such property that the Company is granting to holders of the notes. In the event that the holders of such mortgages are able to exercise their rights under such mortgages, they would be entitled, among other remedies, to foreclose such liens which could result in Casino’s loss of title to such property. Pending the discharge of the liens on the Trappers Parcel, availability under the Revolving Loan is limited to $20 million, and the failure to resolve the issue within one year of the closing of the Revolving Loan will result in a default under the Credit Agreement unless otherwise waived.
Note 6. Shareholders’ Equity (Successor)
Common Stock
Greektown Superholdings is authorized to issue 5 million shares of Common Stock, of which 140,000 shares were issued and outstanding as of June 30, 2010. A total of 4,354,935 shares of Greektown Superholdings’ Common Stock are designated as Series A-1 Common Stock, par value $0.01 per share (the “Series A-1 Common Stock”), and a total of 645,065 shares of Greektown Superholdings’ Common Stock are designated as Series A-2 Common Stock, par value $0.01 per share (the “Series A-2 Common Stock”). Each share of Series A-1 Common Stock represents the same economic interest in Greektown Superholdings as each share of Series A-2 Common Stock and such shares differ only with respect to voting rights as set forth below.
FQ-27
Preferred Stock
Greektown Superholdings is authorized to issue 2,333,333 shares of Preferred Stock. A total of 1,688,268 shares of Greektown Superholdings’ Preferred Stock are designated as a series known as Series A-1 Convertible Preferred Stock, par value $0.01 per share (the “Series A-1 Preferred Stock”), of which 1,463,535 were issued and outstanding as of June 30, 2010. A total of 645,065 shares of Greektown Superholdings’ Preferred Stock are designated as a series known as Series A-2 Participating Convertible Preferred Stock, par value $0.01 per share (the “Series A-2 Preferred Stock”; together with the Series A-1 Preferred Stock, the “Series A Preferred Stock”), of which 162,255 shares were issued and outstanding as of June 30, 2010. A holder’s shares of Series A Preferred Stock are voluntarily convertible at the election of such holder at any time after December 31, 2010 and all shares of Series A Preferred Stock are mandatorily convertible upon the vote or written consent of 66 2/3% of the then outstanding shares of Series A Preferred Stock (with each holder of Series A-1 Preferred Stock and each holder of Series A-2 Preferred Stock entitled to cast one vote with respect to each share of Series A-1 Preferred Stock or Series A-2 Preferred Stock held by such holder) voting together as a single class. Each share of Series A-1 Preferred is convertible into the lesser of (i) such number of fully paid and nonassessable shares of Series A-1 Common Stock as is determined by dividing (A) the sum of $100 per share of Series A Preferred Stock plus an amount equal to the aggregate amount of accrued but unpaid dividends per share of Series A Preferred Stock whether or not declared and subject to certain adjustments (the “Series A Reference Price”) by (B) the Series A Conversion Price (defined below) in effect at the time of conversion, and (ii) the maximum number of shares of Series A-1 Common Stock that can be issued to such holder in accordance with the Certificate of Incorporation of Greektown Superholdings and in compliance with the requirements of the MGCB. Each share of Series A-2 Preferred Stock is convertible into the lesser of (i) such number of fully paid and nonassessable shares of Series A-2 Common Stock as is determined by dividing the Series A Reference Price by the Series A Conversion Price in effect at the time of conversion and (ii) the maximum number of shares of Series A-2 Common Stock that can be issued to such holder in accordance with the Certificate of Incorporation and in compliance with the requirements of the MGCB. The “Series A Conversion Price” means an amount initially equal to $100 but which is subject to adjustment for stock splits, combinations, certain dividends and distributions and with respect to mergers, reorganizations and similar transactions as set forth in the Certificate of Incorporation. Each share of Series A-1 Preferred Stock represents the same economic interest in Greektown Superholdings as each share of Series A-2 Preferred Stock and such shares differ only with respect to voting rights as set forth below.
FQ-28
Summary of Stock Terms
Issuance of Additional Stock. The Board does not have the right to (i) authorize additional shares of Common Stock without the vote of the holders of shares of capital stock of Greektown Superholdings representing a majority of the votes represented by all outstanding shares of capital stock (on an as-converted basis) of Greektown Superholdings entitled to vote, voting together as a single class, (ii) authorize or issue additional shares of Common Stock or Preferred Stock if such authorization or issuance would adversely affect (A) the Series A-1 Preferred Stock in a manner different than it would affect the Series A-2 Preferred Stock without the separate consent of a majority of the outstanding shares of Series A-1 Preferred Stock and (B) the Series A-2 Preferred Stock in a manner different than it would affect the Series A-1 Preferred Stock without the separate consent of a majority of the outstanding shares of Series A-2 Preferred Stock or (iii) cause Greektown Superholdings to issue or sell to any person (including holders of shares of capital stock and affiliates of holders of shares of capital stock) more than five percent (5%) of any Common Stock, Preferred Stock or other voting securities, voting interests or equity interests of Greektown Superholdings except in accordance with the provisions of the Michigan Gaming Act and the rules promulgated thereunder. Greektown Superholdings may not issue any class of non-voting equity securities unless and solely to the extent permitted by section 1123(a)(6) of the title 11 of the Bankruptcy Code; provided, however that such restriction (A) will have no further force and effect beyond that required under section 1123(a)(6) of the Bankruptcy Code; (B) will have such force and effect, if any, only for so long as section 1123(a)(6) of the Bankruptcy Code is in effect and applicable to Greektown Superholdings; and (C) in all events may be amended or eliminated in accordance with applicable law from time to time in effect.
Transfer Restrictions. No stockholder may transfer its shares of Common Stock, Preferred Stock or other voting securities, voting interests or equity interests of Greektown Superholdings unless such transfer is in accordance with the Michigan Gaming Act and the rules promulgated thereunder.
Voting Rights. The holders of Series A-1 Common Stock are entitled to ten (10) votes for each outstanding share of Series A-1 Common Stock. The holders of Series A-2 Common Stock are entitled to one (1) vote for each outstanding share of Series A-2 Common Stock; provided, however, that, except as otherwise required by law, holders of Common Stock are not entitled to vote on any amendment to the Certificate of Incorporation that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation or pursuant to the General Corporation Law of the State of Delaware. Except as provided below, the holders of Series A-1 Preferred Stock are entitled a number of votes equal to ten (10) times the number of shares of Series A-1 Common Stock into which such share of Series A-1 Preferred Stock is then convertible. Except as provided below, the holders of Series A-2 Preferred Stock are entitled to a number of votes equal to one (1) times the number of shares of Series A-2 Common Stock into which such share of Series A-2 Preferred Stock is then convertible. Except as provided by law and as set forth below, holders of Series A-1 Preferred Stock and holders of Series A-2 Preferred Stock will vote together with the holders of Common Stock as a single class. The approval of a majority of the votes of Series A-1 Preferred Stock are required in order to amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of Greektown Superholdings if such amendment, alteration or repeal would adversely affect the Series A-1 Preferred Stock in a manner different than it would affect the Series A-2 Preferred Stock. The approval of a majority of the votes of Series A-2 Preferred Stock are required in order to amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of Greektown Superholdings if such amendment, alteration or repeal would adversely affect the Series A-2 Preferred Stock in a manner different than it would affect the Series A-2 Preferred Stock. Any of the rights, powers, preferences and other terms of the Series A Preferred Stock set forth in the Certificate of Incorporation may be waived on behalf of all holders of Series A Preferred Stock by the affirmative written consent or vote of the holders of sixty six and two thirds percent (66 2/3%) of the shares of Series A Preferred Stock then outstanding (with each holder of Series A-1 Preferred Stock and each holder of Series A-2 Preferred Stock entitled to cast one vote with respect to each share of Series A-1 Preferred Stock or Series A-2 Preferred Stock held by such holder) voting together as a single class.
Dividends. Each share of Series A Preferred Stock (including unissued shares) accrues dividends on a daily basis at the rate equal to 7.5% per annum of the Series A Reference Price (whether or not declared), subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock. Such dividends are cumulative; provided, however, that such dividends should be payable only when, as, and if declared by the Board and for so long as Greektown Superholdings is subject to the jurisdiction of the MGCB, Greektown Superholdings may not pay any dividends unless such dividends are approved by, and issued in compliance with the regulations and restrictions imposed by, the MGCB. Greektown Superholdings may not declare, pay or set aside any dividends on shares of any
FQ-29
other class or series of capital stock of Greektown Superholdings (other than dividends on shares of Common Stock payable in shares of Common Stock) unless the holders of the Series A Preferred Stock then outstanding will first receive, or simultaneously receive, a dividend equal to (i) the amount of accrued but unpaid dividends with respect to each share of Series A Preferred Stock plus (ii) either (A) in the case of a dividend on Common Stock or any class or series of capital stock convertible into Common Stock, the amount that would have been payable with respect to each share of Series A Preferred Stock if such share had been converted to Common Stock on the record date for payment of such dividend or (B) in the case of a dividend on any class or series of capital stock that is not convertible into Common Stock, an amount determined by (x) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of each share of such class or series of capital stock and (y) multiplying such fraction by the Series A Reference Price; provided that, if Greektown Superholdings declares, pays or sets aside, on the same date, a dividend on more than one class or series of capital stock, the holders of Series A Preferred Stock will receive an amount calculated based on the dividend on the class or series of capital stock that would result in the highest Series A Preferred Stock dividend.
Distributions. All distributions to the shareholders of Greektown Superholdings upon a voluntary or involuntary liquidation, dissolution or winding up of Greektown Superholdings, if any, will be made in accordance with the order and priority set forth in the Certificate of Incorporation.
Warrants to Purchase Series A Preferred Stock
On the effective date, Greektown Superholdings issued warrants to purchase Series A-1 Preferred Stock and warrants to purchase Series A-2 Preferred Stock, in each case, at an initial purchase price per share equal to $0.01 (the “Warrant Shares”) which price will be adjusted as set forth in the Warrant to Purchase Series A Convertible Preferred Stock (the “Warrant”), which will be used for both warrants to purchase the Series A-1 Preferred Stock and warrants to purchase the Series A-2 Preferred Stock. Greektown Superholdings entered into such warrants with any Put Party and/or holder of Senior Notes who elected to purchase Preferred Stock representing more than 4.9% of the capital stock of Greektown Superholdings as of the Effective Date, or if such party that qualified as an “Institutional Investor” under Michigan gaming law elected to purchase more than 14.9% of the capital stock of Greektown Superholdings as of the Effective Date.
Voting Rights. The holders of Warrants have no voting rights prior to exercise of the Warrant.
FQ-30
Dividends. The holder of a Warrant is entitled to receive any and all dividends and other distributions paid to the holders of shares of Series A Preferred Stock in accordance with the Certificate of Incorporation. However, such dividends or distributions are payable only upon exercise of the Warrant. In accordance with the Certificate of Incorporation, from the date on which Greektown Superholdings first issues Series A Preferred Stock, each Warrant Share (including unissued Warrant Shares) will accrue dividends on a daily basis at the rate equal to 7.5% per annum of the Series A Reference Price (whether or not declared), subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock.
Early Termination. In the event of any capital reorganization, or any reclassification of the capital stock of Greektown Superholdings (other than a change in par value or from par value to no par value or no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of Greektown Superholdings with or into another corporation (other than a merger solely to effect a reincorporation of Greektown Superholdings into another state), or the sale, lease, transfer, exclusive license or other disposition in a single transaction or series of related transactions of all or substantially all of its assets to any other person and such transaction results in a liquidation, dissolution or winding up of Greektown Superholdings pursuant to Section B.3 of Article 4 of Greektown Superholdings’ Certificate of Incorporation, at any time prior to the earlier of the expiration of a Warrant or the exercise in full of a Warrant, each holder of a Warrant will be entitled to receive, subject to the consummation of such event, the cash, securities and other property that such holder would have received in respect of the Warrant Shares had such holder exercised its Warrant immediately prior to the effective time of such event less an amount equal to (i) the number of Warrant Shares then subject to the applicable Warrant multiplied by (ii) the purchase price per share of such Warrant in effect at the time of such event.
Limitations on Exercise. The exercise of each Warrant and the issuance of the Warrant Shares by Greektown Superholdings upon such exercise are subject to Article Twelfth of the Certificate of Incorporation which prohibits the issuance of shares of capital stock of Greektown Superholdings in certain circumstances.
FQ-31
Note 7. Related-Party Transactions
Greektown Holdings entered into certain business transactions with individuals or entities related to the ownership of direct or indirect member interests. Under the provisions of their internal control system, expenditures to any one related party in excess of $50,000 annually must be approved by the Company’s management board. Payments to related parties, other than financing-related activities and member distributions, totaled approximately $177,000 and $276,000 for the three months ended June 30, 2010 and 2009, respectively, and $340,000 and $589,000 for the six months ended June 30, 2010 and 2009, respectively. Greektown Holdings entered into a management services agreement with the Sault Ste. Marie Tribe of Chippewa Indians (the Tribe), a related entity to Kewadin, Monroe, and Greektown Holdings, which required Greektown Holdings to pay a base management fee of $110,000 per month, as well as reimbursement of travel, lodging, and out-of-pocket expenses incurred and all reasonable salary costs and fringe benefit expenses of key personnel who are providing such contracted services. This Agreement was rejected by the debtors in the restructuring proceedings. As such, these payments were discontinued. The pre-petition amount of $550,000 was settled as a result of the emergence from bankruptcy (see Note 3).
Greektown Casino periodically enters into certain business transactions with persons related to the direct or indirect ownership of their member interests. Since 2007, Greektown Casino has entered into transactions where customers of Greektown Casino have the ability to earn food complimentaries for use at Fishbones, an upscale seafood restaurant located near Greektown Casino. Greektown reimburses Fishbones at a discounted rate for the costs to Fishbones for providing food to customers redeeming the complimentaries. Greektown Casino expenses with respect to the Fishbones complimentaries totaled approximately $161,000 and $314,000 for the three and six months ended June 30, 2010 and $189,000 and $353,000 for the three and six months ended June 30, 2009. Fishbones is owned in part by Ted Gatzaros, a former director of Greektown Casino and current member of Monroe. Monroe had been a related party, however, as of the Effective Date, Monroe is no longer an affiliated entity.
Note 8. Gaming Taxes and Fees
Under the provisions of the Michigan Gaming Control and Revenue Act (the Act), casino licenses are subject to the following gaming taxes and fees on an ongoing basis:
An annual licensing fee;
An annual payment, together with the other two casino licensees, of all MGCB regulatory and enforcement costs. The Company was assessed $10.2 million for its portion of the annual payment in 2010;
A wagering tax, calculated based on adjusted gross gaming receipts, payable daily, of 24% until the Company was considered fully operational on March 9, 2010 effective February 15, 2009, as defined in the Gaming Act, at which point the tax rate was reduced to 19%; and
A municipal services fee in an amount equal to the greater of 1.25% of adjusted gross gaming receipts or $4 million annually.
FQ-32
These gaming taxes and fees are in addition to the taxes, fees, and assessments customarily paid by business entities conducting business in the State of Michigan and the City of Detroit, and amounted to $18.9 million and $23.0 million for the three months ended June 30, 2010 and 2009, respectively and $38.4 million and $44.4 million for the six months ended June 30, 2010 and 2009, respectively.
The Company is also required to pay a daily fee to the City of Detroit (City) in the amount of 1% of adjusted gross receipts, increasing to 2% of adjusted gross receipts if adjusted gross receipts exceed $400 million in any one calendar year. Additionally, if and when adjusted gross receipts exceed $400 million, the Company will be required to pay $4 million to the City of Detroit. The Company’s adjusted gross receipts are not projected to exceed $400 million during the calendar year 2010.
The Act was amended in 2004 to increase the wagering tax rate for the three Detroit casinos from 18% of adjusted gross receipts to 24% of adjusted gross receipts. If the MGCB determines that (1) the licensee has been “fully operational” for 30 consecutive days and (2) the licensee has been in compliance with its Revised Development Agreement for at least 30 consecutive days, then the MGCB is required to certify the licensee and the tax rate will revert to a 1% increase only, resulting in a tax rate for Greektown of 19% of adjusted gross receipts. Greektown was “fully operational” and had complied with the first requirement (fully operational for 30 consecutive days) on March 17, 2009.
The Company also has met the second requirement that it had been in compliance with the Development Agreement for 30 consecutive days, however, the City had asserted that it did not believe Greektown was in compliance with the Development Agreement.
On October 9, 2009, the Debtors filed a motion with the Bankruptcy Court to approve a settlement agreement (the Settlement Agreement) with the City, which resolved all disputes with the City. The Settlement Agreement provided, among other things, that:
| |
• | The City should use its best efforts to support the Debtors efforts in obtaining the Tax Rollback effective as of February 15, 2009 before the MGCB (which was obtained on March 9, 2010); |
The Debtors should pay the City a settlement amount in the aggregate of $16.6 million (the “Settlement Payment”), less certain credits described below, subject to the following provisions: (i) the Debtor should pay initial cash payment of $3.5 million (the “Initial Cash Payment”) within two business days after entry of an order by the Bankruptcy court approving the Settlement Agreement; (ii) a credit should be applied to reduce the Settlement Payment in an amount equal to the difference between (a) the amount of gaming taxes actually paid to the City between February 15, 2009 and February 15, 2010 and (b) the amount of gaming taxes that would have been paid through the date of the settlement to the City had the Tax Rollback been effective as of February 15, 2009); and (iii) the Debtors should pay a final cash amount of $9.6 million (Final Cash Payment), which is the remaining amount of Settlement Payment after the Initial Cash Payment and the application of the credit described above;
| |
• | Upon the receipt of the Final Cash Payment, the City should be deemed to have dismissed and waived any and all claims of default under the Development Agreement; |
| |
• | The City should cease its demand for a 1% tax increase due to the delayed completion of the Expanded Complex; |
| |
• | The City should consent to the transfer of the ownership of the Greektown Casino and the Development Agreement to the reorganized Debtors in accordance with the Plan; and |
| |
• | The City should take actions to dismiss all related litigation. |
The Settlement Agreement was conditioned upon (i) approval of the Settlement Agreement by the Bankruptcy Court, which was obtained on February 22, 2010; and (ii) final approvals of the Settlement Agreement from various offices of the City, which were obtained on February 24, 2010.
On March 9, 2010, the Michigan Gaming Control Board certified that the Casino was in compliance with the development agreement as of February 15, 2009 and as such was entitled to a tax adjustment retroactive to February 15, 2009.
FQ-33
As a result of the retroactive adjustment, the Company recorded a refundable from the State of Michigan for approximately $15.0 million at March 8, 2010, which it will utilize instead of making daily payments until the credit is fully utilized. As of June 30, 2010, the outstanding refundable amount was $5.7 million.
The Company paid the City $13.5 million for the City of Detroit Settlement during the six months ended June 30, 2010.
On December 11, 2007, the Company entered into an Acknowledgement of Violation (“AOV”) with the Michigan Gaming Control Board. The AOV included four complaints addressing procurement, kiosks, electronic gaming device meters, and signage. Under the terms of the AOV, a total fine of $750,000 was assessed, of which $300,000 was immediately payable and $450,000 would not be an obligation unless the Company commits further violations for three years. The Company paid and recorded the $300,000 as expense during 2007. The remaining amount has not been recorded as no further violations occurred since the date the AOV was signed and the liability is not believed to be probable as of June 30, 2010.
FQ-34
Note 9. Michigan Gaming Control Board Covenant
On June 28, 2010, the MGCB approved Greektown’s new ownership structure, capitalization and management. The MGCB’s approval order (the “Order”) provides that the Company must demonstrate its continuing financial viability for so long as any indebtedness is outstanding under the Revolving Loan and the Notes by complying with a minimum fixed charge coverage ratio maintenance covenant and a limitation on certain restricted payments.
Minimum Fixed Charge Coverage Ratio
The Order requires the Company and its subsidiaries to maintain a ratio of EBITDA to Fixed Charges (each as defined below) on the last day of each calendar quarter of not less than:
| | |
| (1) | 1.00 to 1.00 (until March 31, 2011); and |
| | |
| (2) | 1.05 to 1.00 (after March 31, 2011). |
| | |
The fixed charge coverage ratio will be measured from the Effective Date until the applicable determination date for all fiscal quarters ending on or before March 31, 2011 and on a trailing twelve month basis thereafter. |
| | |
| The Order defines the ratio as the ratio of: |
| | |
| (1) | EBITDA for the measurement period then ending to |
| | |
| (2) | Fixed Charges for the measurement period. |
| | |
| For purposes of the Order: |
| | |
“EBITDA” means, for any period of determination, net income for the applicable period plus, without duplication and only to the extent deducted in determining net income: |
| | |
| (1) | depreciation and amortization expense for such period; |
| | |
| (2) | interest expense, whether paid or accrued, for such period; |
| | |
| (3) | all income taxes for such period; and |
| | |
| (4) | for any fiscal quarter ending on or before June 30, 2011, specified non-recurring expenses for such period. |
| | |
| “Fixed Charges” means, for any period, the sum, without duplication, of: |
| | |
| (1) | all cash interest expense on funded debt paid or payable in respect of such period; plus |
| | |
| (2) | all installments of principal with respect to funded debt, including excess cash flow recapture payments, or other sums paid or due and payable during such period by the Company with respect to all of its funded debt (other than the repayment of advances under a revolving credit facility and payments of principal in connection with any refinancing of any funded debt); plus |
| | |
| (3) | all preferred dividends paid in cash for such period; plus |
| | |
| (4) | all unfinanced capital expenditures for such period; plus |
|
| (5) | all capitalized rent and lease expense for such period. |
The Company will be permitted to cure any anticipated non-compliance with this ratio with capital raised in an offering of equity securities. The Company may add to EBITDA the net proceeds of any offering of equity securities of the Company or its subsidiaries consummated before the date that a financial audit must be delivered to the MGCB for the applicable period with
FQ-35
respect to which the fixed charge coverage ratio is measured under the order to make up the amount of any shortfall in the minimum fixed charge coverage ratio for the applicable period. Any equity proceeds exceeding those necessary to make up the shortfall will be available to make up shortfalls in the minimum fixed charge coverage ratio for any subsequent periods.
Limitation on Certain Restricted Payments
The MGCB order also prohibits the Company from making any distributions or pay any dividends on account of the Company’s capital stock without the prior written approval of the MGCB, other than repurchases, redemptions or other acquisitions for value of any of the Company’s preferred stock or common stock held by any current or former officer, director or employee of the Company or its subsidiaries pursuant to any equity subscription agreement, stock option agreement, shareholders agreement or similar agreement, not to exceed $1.5 million in any twelve month period.
City of Detroit Covenant
The Company is required, within six months of the Effective Date, to propose a manager to the City of Detroit for approval by Detroit’s mayor and city council (which approval shall not be unreasonably withheld by the mayor or the city counsel); provided, that such time may be extended by the mayor of Detroit, in his discretion, for up to two one-month periods upon written request. In addition, any such manager or supplement to the existing management team would also be subject to the approval of the MGCB and any other applicable regulatory approvals.
Note 10. Commitments and Contingencies
The Company is a defendant in various pending litigation. In management’s opinion, the ultimate outcome of such litigation will not have a material adverse effect on the results of operations or the financial position of the Company.
The Revised Development Agreement also provides that should a triggering event as defined, occur, the Company must sell its assets, business, and operations as a going concern at their fair market value to a developer named by the City.
As part of the bankruptcy reorganization process, the Company engaged Moelis & Company, LLC (“Moelis”) to act as investment banker. The Moelis engagement letter provides for a success fee if certain requirements are met. The amount of any success fee depends, at least in part, on interpretation of the Moelis engagement letter by the U.S. Bankruptcy Court.
Certain parties to contracts entered into prior to the commencement of the Debtors’ bankruptcy proceedings have asserted claims alleging that the Company assumed those contracts and is responsible for amounts necessary to cure prepetition defaults under such contracts. Other similar claims may still be asserted. The Company may become involved in disputes over the nature and amount of such claims. The amount of such claims are estimated at approximately $2.7 million.
Note 11. Lawsuit Settlement Obligation (Predecessor)
A settlement agreement was reached in various lawsuits that were filed challenging the constitutionality of the Casino Development Competitive Selection Process Ordinance. The Company made payments totaling $17.0 million against this settlement obligation. As a result of the Chapter 11 filing and the subsequent plan of reorganization, the remainder of the estimated settlement of $12.3 million was settled as of June 30, 2010 (see Note 3).
Note 12. Subsequent Event
On August 11, 2010, the Company’s Compensation Committee approved a director compensation program for members of the Company’s Board of Directors. Pursuant to this program, the Chairman of the Board shall receive an annual retainer of $225,000, and all other board members shall receive an annual retainer of $75,000. In addition, the Chairmen of the Audit Committee, the Nominating, Corporate Governance and Regulatory Compliance Committee and the Compensation Committee shall each receive an additional $25,000, and each member of the Board of Directors that serves on a committee in a non-chair capacity shall receive an additional $10,000. All annual retainers will be paid half in cash and half in resticted shares of Series A-1 Common Stock, vesting in quarterly increments over a one year period. Each director may elect annually to receive all or part of the equity portion of the award in cash. Such cash payments will be made when the equity would have vested. No separate per-meeting fees will be paid to members of the Board of Directors.
FQ-36
In addition, the director compensation program provides that each member of the Company’s Board of Directors is entitled to receive restricted shares of the Company’s Series A-1 Common Stock. Upon joining the Company’s Board of Directors, the Chairman of the Board is entitled to $275,000 of such stock, the Vice Chairman of the Board is entitled to $150,000 of such stock, and all other directors are entitled to $125,000 of such stock. All such restricted shares will vest in three equal annual installments.
FQ-37
Greektown Superholdings, Inc.
Exchange Offer for
$280,167,000 Series A 13% Senior Secured Notes due 2015 and
$104,833,000 Series B 13% Senior Secured Notes due 2015
| | |
|
| |
PRELIMINARY PROSPECTUS |
SEPTEMBER 17, 2010 |
|
| |
No person has been authorized to give any information or to make any representation other than those contained in this prospectus, and, if given or made, any information or representations must not be relied upon as having been authorized. This prospectus does not constitute an offer to sell or the solicitation of an offer to buy any securities other than the securities to which it relates or an offer to sell or the solicitation of an offer to buy these securities in any circumstances in which this offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made under this prospectus shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this prospectus.
Until , 2010, all broker-dealers that effect transactions in these securities, whether or not participating in the exchange offer, may be required to deliver a prospectus. This is in addition to the broker-dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
| |
Item 20. | INDEMNIFICATION OF DIRECTORS AND OFFICERS |
Greektown Superholdings is a company organized under the laws of the State of Delaware.
Our Certificate of Incorporation and Bylaws include provisions that generally eliminate personal liability of our directors and officers for breaches of their fiduciary duty. These provisions do not eliminate liability for: (i) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law or (ii) in respect of any claim, issue or matter as to which a director or officer has been finally adjudged by a court of competent jurisdiction to be liable to Greektown Superholdings, unless, and only to the extent that, the Court of Chancery of Delaware or another court in which the proceeding for which the director or officer is seeking indemnification determines that, despite adjudication of liability, but in view of all of the circumstances of the case, such director or officer is fairly and reasonably entitled to indemnification for expenses deemed proper by such court.
Our Bylaws provide that we will indemnify our directors and officers to the fullest extent authorized by the Delaware General Corporation Law. Our Bylaws permit us to indemnify our employees to the fullest extent authorized by the Delaware General Corporation Law, when authorized from time to time by the board of directors. We are authorized to carry directors’ and officers’ insurance protecting us, any director, officer or employee, against any expense, liability or loss, whether or not we would have the power to indemnify such person.
The limitation of liability and indemnification provisions in our Certificate of Incorporation and Bylaws may discourage stockholders from bringing a lawsuit against directors for breach of fiduciary duty. These provisions also may reduce the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, we may be adversely affected to the extent we pay the costs of settlement and damage awards pursuant to these indemnification provisions.
The Bylaws also provide that indemnification provided for in the Bylaws will not be deemed exclusive of any other rights to which the indemnified party may be entitled and that any repeal or modification of the Bylaws’ indemnification provisions will be prospective only and will not adversely affect the rights of any director or officer in effect at the time of any act or omission occurring prior to such repeal or modification.
In addition to the above, Greektown Superholdings may enter into one or more agreements with any person to provide for indemnification greater or different than that which is provided for in Greektown Superholdings’ Certificate of Incorporation or the Bylaws.
There is no pending litigation or proceeding involving a director, officer or employee of Greektown Superholdings as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director, officer or employee.
| |
Item 21. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
The attached Exhibit Index is incorporated herein by reference.
| | |
| (a) The undersigned registrant hereby undertakes: |
| |
| (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| | |
| | (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
| | |
| | (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; |
| | |
| | (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
| | |
| (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| | |
| (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; |
| |
| (4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use; |
| | |
| (5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
| | |
| | a. Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| | |
| | b. Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| | |
| | c. The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| | |
| | d. Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
(b) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
(d) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on September 17, 2010.
| | |
| GREEKTOWN SUPERHOLDINGS, INC. |
| | |
| By: | /s/ George Boyer |
| |
|
| Name: | George Boyer |
| Title: | Executive Chairman of the Board |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints George Boyer and Clifford J. Vallier, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
This Power of Attorney shall not revoke any powers of attorney previously executed by the undersigned. This Power of Attorney shall not be revoked by any subsequent power of attorney that the undersigned may execute, unless such subsequent power of attorney specifically provides that it revokes this Power of Attorney by referring to the date of the undersigned’s execution of this Power of Attorney. For the avoidance of doubt, whenever two or more powers of attorney granting the powers specified herein are valid, the agents appointed on each shall act separately unless otherwise specified.
Pursuant to the requirements of the Securities Act of 1933, this registration statement and power of attorney have been signed by the following persons in the capacities and on the dates indicated.
| | | | |
Signature | | Title | | Date |
| |
| |
|
|
/s/ George Boyer | | Executive Chairman of the Board, Chairman | | |
| | of the Board, Director (Principal Executive | | |
George Boyer | | Officer) | | September 17, 2010 |
| | | | |
/s/ Clifford J. Vallier | | | | |
| | President, Chief Financial Officer and | | |
Clifford J. Vallier | | Treasurer (Chief Accounting Officer) | | September 17, 2010 |
| | | | |
/s/ John I. Bitove | | | | |
| | | | |
John I. Bitove | | Director | | September 17, 2010 |
| | | | |
/s/ Freman Hendrix | | | | |
| | | | |
Freman Hendrix | | Director | | September 17, 2010 |
| | | | |
/s/ Yvette E. Landau | | | | |
| | | | |
Yvette E. Landau | | Director | | September 17, 2010 |
II-3
EXHIBIT INDEX
| | |
Exhibit
No. | | Description of
Exhibit |
| |
|
2.1 | | Second Amended Joint Plans of Reorganization filed with the United States Bankruptcy Court for the Eastern District of Michigan on December 7, 2009. (Schedules omitted. The Registrant hereby agrees to provide the omitted schedules to the Plan supplementally to the Securities and Exchange Commission upon request.)* |
| | |
3.1 | | Certificate of Incorporation of Greektown Superholdings, Inc.* |
| | |
3.2 | | Certificate of Amendment to the Certificate of Incorporation of Greektown Superholdings, Inc.* |
| | |
3.3 | | Bylaws of Greektown Superholdings, Inc.* |
| | |
4.1 | | Senior Secured Superpriority Debtor-in-Possession Credit Agreement, dated December 29, 2009.* |
| | |
4.2 | | Form of Series A Preferred Stock Warrant.* |
| | |
4.3 | | Indenture, dated June 30, 2010, by and among Greektown Superholdings, Inc., Wilmington Trust FSB and certain subsidiaries of Greektown Superholdings, Inc.** |
| | |
5.1 | | Opinion of Dechert LLP. |
| | |
10.1 | | Revised Development Agreement, dated August 5, 2002, by and among the City of Detroit, The Economic Development Corporation of the City of Detroit and Greektown Casino, L.L.C.* |
| | |
10.2 | | Lease between Adam J. Maida Roman Catholic Archbishop of the Archdiocese of Detroit and Greektown Casino, LLC dated August 28, 2006.* |
| | |
10.3 | | Amended Settlement Agreement dated February 22, 2010 among the City of Detroit, Greektown Casino, L.L.C., Greektown Holdings, L.L.C. and the other affiliated debtors and debtors in possession.* |
| | |
10.4 | | Collective Bargaining Agreement effective June 13, 2008, by and between Greektown Casino, LLC., dba Greektown Casino, and the International Union, Security, Police, Fire Professionals Of America (IUSPFPA), and its Amalgamated Local #1227.* |
| | |
10.5 | | Collective Bargaining Agreement dated October 17, 2007, between Greektown Casino, LLC, and The Detroit Casino Council.* |
| | |
10.6 | | Consulting Agreement dated February 12, 2010, by and between Greektown Casino, L.L.C., and WG-Michigan LLC.* |
| | |
10.7 | | Indemnification Agreement dated March 31, 2010, by and among Greektown Superholdings, Inc., George Boyer and certain other parties thereto.* |
| | |
10.8 | | Indemnification Agreement dated March 31, 2010, by and among Greektown Superholdings, Inc., Cliff J. Vallier and certain other parties thereto.* |
| | |
10.9 | | Purchase and Put Agreement, dated November 2, 2009, by and among the Put Parties.*** |
| | |
10.10 | | First Amendment to the Purchase and Put Agreement, dated January 11, 2010, by and among the Put Parties.*** |
| | |
10.11 | | Disclosure Statement filed with the United States Bankruptcy Court for the Eastern District of Michigan on December 7, 2009. **** |
| | |
10.12 | | Form of Litigation Trust Agreement, to be entered into by and among the Debtors, the trustee for the Litigation Trust and certain members of the governing board of the Litigation Trust appointed pursuant to the Plan.*** |
| | |
10.13 | | Form of Litigation Trust 8% Promissory Note.*** |
| | |
10.14 | | Letter Agreement, dated November 13, 2009, by and among the Put Parties and certain pre-petition lenders.*** |
| | |
10.15 | | Form of Management Agreement, to be entered into by and between Greektown Superholdings, Inc. and WG-Michigan, LLC. **** |
| | |
10.16 | | Greektown Superholdings, Inc. Stock Incentive Plan. |
| | |
10.17 | | Pledge and Security Agreement, dated June 30, 2010, by and among Greektown Superholdings, Inc., Greektown Newco Sub, Inc., Greektown Holdings, L.L.C., Greektown Casino, L.L.C., Realty Equity Company Inc., Contract Builders Corporation and Comerica Bank. |
| | |
10.18 | | Pledge and Security Agreement, dated June 30, 2010, by and among Greektown Superholdings, Inc., Greektown Newco Sub, Inc., Greektown Holdings, L.L.C., Greektown Casino, L.L.C., Realty Equity Company Inc., Contract Builders Corporation and Wilmington Trust FSB. |
| | |
10.19 | | Credit Agreement, dated June 30, 2010, by and between Greektown Superholdings, Inc. and Comerica Bank.** |
| | |
12.1 | | Statement regarding computation of ratio of earnings to fixed charges. |
| | |
16.1 | | KPMG Letter dated March 31, 2010.* |
| | |
21.1 | | List of Subsidiaries of Greektown Superholdings, Inc.* |
| | |
23.1 | | Consent of Ernst & Young LLP, independent registered public accounting firm. |
| | |
24.1 | | Powers of Attorney (included on signature pages hereto). |
| | |
25.1 | | Statement of Eligibility of Trustee on Form T-1 under the Trust Indenture Act of 1939 of Wilmington Trust FSB. |
| | |
99.1 | | Form of Letter of Transmittal. |
| | |
99.2 | | Form of Notice of Guaranteed Delivery. |
| | |
99.3 | | Form of Letter to Holders. |
| | |
99.4 | | Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. |
| | |
99.5 | | Form of Letter to Clients. |
| | |
* Previously filed with Form 10 |
| | |
** Previously filed with Form 8-K on July 2, 2010 |
| | |
*** Previously filed with Amendment No. 1 to Form 10 |
| | |
**** Previously filed with Amendment No. 2 to Form 10 |
