Monarch Shares Dethroned After Colorado Casino Contractor Files Suit
Posted on: September 3, 2019, 12:30h.
Last updated on: September 3, 2019, 01:04h.
Monarch Casino & Resort (NASDAQ:MCRI) tumbled almost five percent Tuesday on above-average volume after PCL Construction Services, Inc., the contractor working on the Black Hawk casino renovation in Colorado, filed a lawsuit against the regional gaming operator.
Reno-based Monarch is in the midst of a major transformation of the eponymous Black Hawk, Colo. property, one that is expected to feature a 23-story, 500-room hotel and a gaming area that is more than double the current size when the project is completed.
As the gaming company tells it, its relationship with PCL, a collection of independent construction companies operating throughout the US and in some international markets, is deteriorating, increasingly tense, and will result in more delays.
Given this lawsuit, the increasingly adversarial tone of communication from PCL, and our understanding of recent discussions regarding project delivery, we now believe that our expansion project – the new Monarch Casino Resort Spa Black Hawk – including the expanded casino, restaurants and certain public areas – should be fully open in the first quarter of 2020,” said Monarch in a statement.
The company added that refurbishments for a certain part of the gaming area will be finished in the second quarter of next year.
That timeline is well past what the company previously expected. On Monarch’s fourth-quarter earnings conference call in February, CEO John Farahi said PCL informed the gaming company that the casino, hotel, dining venues and retail stores would be completed by the current quarter, with some additional details slated to be finalized in the last three months of this year.
On Monarch’s first-quarter earnings call, Farahi reiterated that timeline.
“Our general contractor has informed us that it is working diligently to complete the expanded casino and hotel tower, as well as the new restaurants and retail areas, by the end of the third quarter of 2019,” said the CEO. “We expect the general contractor to provide us with the final phasing and opening dates for the expanded facilities in the second quarter of 2019. In addition, we expect to complete the upgraded amenities in the existing casino in the fourth quarter of 2019, leading to a first full year of expanded operations in 2020.”
Monarch Casino has been eagerly anticipating the debut of the newly remodeled property, recently announcing a career fair aimed at filling 1,000 positions at the venue, and even reaching into the Las Vegas gaming and leisure talent pool to get workers into those jobs. In addition to the Colorado property, the company operates the Atlantis Casino Resort Spa in Reno.
There’s financial incentive for Monarch to get the Black Hawk renovations completed. In an August filing with the Securities and Exchange Commission (SEC), the company noted that in June 2016, it procured a $250 million credit facility
“The total revolving loan commitment under the Amended Credit Facility will be automatically and permanently reduced to $50.0 million on the earlier of the last business day of the first full quarter after completion of the expansion project at the Monarch Casino Black Hawk, or on December 31, 2019, and all then-outstanding revolving loans up to $200.0 million under the Amended Credit Facility will be converted to a term loan at such time,” according to the filing.
Questions Around Finances
While Monarch management believes the completed Black Hawk property will be a “game changer” in the Colorado gaming market, the company warned that it has yet to enter into a guaranteed maximum price pact with PCL.
The gaming company did not provide specific details about the project’s costs. PCL did not identify the dollar amount of its suit, but the company did say it’s “eager to resolve all of the outstanding issues.”