Projo 7 to 7 News Blog

It appears the deal will also spell the end of live racing in Rhode Island 62 years after Twin River opened in 1947 as a thoroughbred track known as Lincoln Downs.

After B.A. Dario sold the facility in 1977 to Joe Linsey and his nephew, Al Ross, it took on a new identity as Lincoln Greyhound Park, a dog-track. By the 1990's, the grand dame of Louisquisset Pike was owned by the British Wembley PLC, and didn't change hands again until the criminal conviction in 2005 of the top Wembley executives here and in the U.K. on charges they conspired to bribe former House Speaker John B. Harwood.

That set the stage for the current owners - who include two of the original developers of the Mohegan Sun - to buy Lincoln Park and spend $220 million on renovations aimed at providing "a first-class casino experience'' at the track-cum-slot parlor.

Twin River is operated by UTGR Inc., a subsidiary of BLB Investors - a holding company made up of Kerzner International Limited, the Waterford Group LLC and Starwood Capital Group, which in turn invests money for pension funds across the country.

The video-slots are still making money for Twin River and, by extension, for the state Lottery which controls the leases on the 1,751 electronic gambling machines housed there. Out of every dollar lost into one of these machines, the state gets roughly 61 cents, an anticipated $244 million this year alone.

The bankruptcy filing was not a surprise. The owners defaulted on their loan payments in March 2008. The following September the Moody's Investor Service downgraded their credit rating, citing a "high probably of bankruptcy'' in the near future.

Asked at the time if the downgrade reflected concern that Twin River, though still profitable while other gambling houses across the country were racking up losses, would not produce enough earnings to meet its obligations on $565 million in loans, Moody's vice president and senior credit officer Peggy Holloway said: "Yes."

She said "the state has - and I think it is pretty well known - a pretty onerous tax rate, and this property has produced a far lower level of revenues and earnings than was anticipated at the time the project was started."

The owners dropped increasingly urgent warnings about the likelihood that they would be forced into bankruptcy if the state did not come to their financial aid, by either raising their share of the revenue or picking up upwards of $20 million annually in marketing and capital expenditure costs.

They called a Chapter 11 bankruptcy filing a last resort, but an increasingly likely one that might leave their lenders with "a haircut'' if they did not willingly agree to more favorable payment terms, and the dog owners with nothing if they balked at their offer to buy out their $9-million a year multiyear contract, in exchange for $2 million annually for three years.

Never once did they mention the potential for a structured agreement in which they would be forced to walk away, leaving their lenders in control of the state's largest slot parlor.

Gambling is the state's third largest source of revenue, with the state expecting $244 million this year alone from the slot play at Twin River. But in a year when the governor and lawmakers are struggling to close a massive budget hole, none were amenable to cutting the state's share which currently stands at close to 61 percent of every dollar lost into on these machines.

It remains to be seen how the new operator would be chosen.

While Twin River would not be the first gambling enterprise to sink into bankruptcy, it has a unique relationship with the state of Rhode Island that raises unique legal questions since the state not only controls its operating license but also the 4,751 video slots and virtual Blackjack machines placed there by the state Lottery that are its big money maker.

Under this arrangement, the state gets all of the money on hand each day, takes each share and then divvies up the amounts owed each of the other "partners'' in this Lottery-sponsored slot operation, including Twin River's owners. And this will likely continue, though Gary Sasse, speaking in his capacity as Department of Revenue director last July, acknowledged that even then "additional measures [had] been put in place to ensure protection of state funds in the event of a bankruptcy filing or possible interruption of transfer of funds." That included posting a Lottery representative in the Twin River money room to examine the deposit slips, and observe the physical pick-up of the money by an armored car service.

Asked why the state had taken these steps, Sasse said: "It's obvious. We are exercising what we believe to be appropriate due diligence. We are confident that the business is strong. But we certainly have an obligation to the taxpayers to prepare for all contingencies."

Extra: Read information from the state Lottery Web site on net terminal income, the amount left in the machine after the winning players have been paid.

(The original version of this report was posted at 7:27 a.m., and it was updated at 7:52 and 8:15 a.m.)