Echelon Partners Amend Agreement
Lisa Plummer -- Tradeshow Week, 10/17/2008 1:20:00 PM
In light of a turbulent financial landscape, Boyd Gaming Corp. and New York-based Morgans Hotel Group have made adjustments to their joint-venture partnership in the $4.8 billion Echelon project. Following in the footsteps of Boyd’s suspension of construction on the 87-acre, multi-resort property, the companies have reworked financial agreements in the development of MHG’s Delano and Mondrian hotel properties at Echelon.
As a result of the credit crunch, which has made it difficult to obtain capital, the partners agreed to extend MHG’s construction financing deadline for both hotels to Dec. 31, 2009. According to Boyd spokesman Rob Stillwell, this amended agreement, along with the construction delay, will provide more breathing room to secure financing and, possibly, additional partners.
Despite the financial challenges, Stillwell said, MHG still plans to develop the boutique properties, two of Echelon’s five resorts that will include 5,000 hotel rooms and 750,000 square feet of convention and meeting space.
“We had great confidence in (the Mondrain and Delano) brands when we announced them (as part of Echelon) in 2006, and we have great confidence today,” he added. “The reality is that the financial markets simply wouldn’t support the capitalization that we’d envisioned for that venture. That’s why we engaged in the conversation with Morgans to extend the outside start date. (The agreement) benefits both parties because it preserves our original intent.”
According to a recent MHG corporate press release, the amended agreement includes the return of MHG’s $30 million deposit provided for the project, plus interest; the elimination of MHG’s future funding obligations of approximately $41 million; the elimination of any obligation by the company to provide a construction loan guarantee; and sole control over the use of its Delano and Mondrian brands in connection with the project. The amended agreement also limits the amounts that MHG and Boyd are required to continue to fund for pre-development and related costs to approximately $420,000 each.
“We believe the amended agreement provides substantial flexibility and represents a sensible framework for MHG to move forward with the Echelon project on the basis of a vastly reduced capital commitment,” said Fred Kleisner, MHG’s president and CEO. “We will continue to evaluate the project as we move forward and continue to act in the best interest of our stockholders.” Until the deadline, and as both companies wait out the stormy markets, Stillwell said, the amended agreement allows the partners to remain open to exploring additional financing options.
“This agreement contemplates a reduced equity stake for both partners, which gives us more flexibility regarding the capital structure that will support (the project),” he added. “We haven’t determined what it will be ultimately, but what it does is allow us to consider other options, including another partner. Everything’s on the table at this point.”
Even with the unknowns, the amended agreement doesn’t change the size or scope of development, Stillwell said, or the fact that both Boyd and MHG remain committed to Echelon.
“Right now, we believe the three to four quarters is going to give us an adequate amount of time for things to change,” he added. “At the end of the day, both companies remain interested in the prospect of opening a Mondrian and Delano at Echelon.”
