On the Monday before Christmas, Carlton Saffa was running late for an appointment after a teleconference call in Little Rock with lawyers in Chicago, New York and Portland, Maine. The chief market officer of Saracen Casino Resort in Pine Bluff was somewhat frazzled after the extended meeting proved to be frustrating yet oh-so-fruitful.
The parties had hammered out final details of a lucrative refinancing that will save the Quapaw Nation $30 million annually on its Arkansas casino. The tribe closed on a new financial package Dec. 21 that slashes the interest rate on the millions of dollars backing Saracen from 13% to 2.59%.
“I’ve been losing hair and gaining weight,” Saffa said of the six-month effort to redo the casino’s debt.
The new deal replaces a six-year junk bond issue of $285 million that financed construction of Saracen with a $375 million funding agreement split between a $275 million term loan and a $100 million line of credit.
The LOC will help bankroll construction of an adjoining 320-room, 13-story hotel tower, 1,600-seat event center and a new addition to the plans: a 650-space parking deck envisioned to help boost patronage on rainy days.
The trifecta of phase two amenities is estimated to cost in the $155 million range. Construction is expected to start this year after Saracen chooses a general contractor.
“I expect to shortly go out for proposals to GCs,” Saffa said. “The No. 1 question people ask me all the time is are we going to build the hotel. Are you kidding? Of course, we’re going to build the hotel.”
The timetable for building the hotel was thrown off track by the governmental response to the COVID-19 outbreak and the ensuing disruption of the supply chain and normal life in 2020. Overriding concerns of public safety put the hospitality industry under a coronavirus cloud and ultimately put construction of the Saracen hotel-events center on hold.
“COVID scared us to death,” Saffa said. “You’re $300 million in [with construction of the casino], and we get a closure order from the government. We backed off.”
A two-week closure order in March 2020 that shut down the slot machines and sports book action at the Saracen Annex in Pine Bluff stretched into two months before the facility and the casinos at Oaklawn and Southland were allowed to reopen at one-third capacity in May 2020.
On March 27, 2020, Moody’s Investors Service downgraded Saracen’s bonds along with a string of other casino offerings in light of COVID restrictions and an unsettled business climate. The bond rating service also stamped the debt of the still unopened casino with a “negative outlook,” indicating further downgrades were expected.
While casino operations were allowed to return to normal, the pandemic fallout delayed completion of Saracen by more than three months.
For the short term, Quapaw Nation choked down 13% interest on unrated, non-investment-grade bonds issued in September 2019 to get the casino construction rolling.
“We were making money even then, but it was always our plan to refinance,” Saffa said. “Our original hope was to write new paper with high single-digit interest with better bonds and a balloon payment on the end.”
Since opening in October 2020, Saracen operations have surpassed revenue forecasts.
“What they’ve been able to do in a short amount of time is amazing, not just the casino but their philanthropic interaction with the community,” said Daniel Robinson, south-central Arkansas regional community president for Simmons Bank of Pine Bluff. “It’s exciting to see their vision become a partial reality and will be even more exciting to see the vision fully realized.”
The good financial results at Saracen prompted a revised bond rating. On Aug. 30, 2021, Moody’s upgraded its probability of default rating for the casino’s bonds from Caa1 back to its original B3.
That favorable bounce was tied to Saracen generating $64 million-$70 million in earnings before interest, taxes, depreciation and amortization in its first year of operations. That trend line exceeded Moody’s $60 million forecast.
“This performance was despite the challenges and uncertainty related to the coronavirus, and Moody’s initial concerns that there is only a limited history of commercial gaming in Arkansas,” the bond rating service noted.
“That was a sea change for us,” Saffa said of the improved bond rating. “Saracen outperformed expectations, and that opened the doors for refinancing.”
The Moody’s upgrade set the stage for negotiating a much better than expected refinancing deal. The positive outlook by Moody’s was underscored two months later with a similar move by S&P Global Ratings.
Led by Wells Fargo Bank of Sioux Falls, South Dakota, a group of eight lenders came together to fund Saracen’s new loan package. Two Arkansas banks are among them: Centennial Bank of Conway, about $87 million, and Simmons Bank, about $25 million.
“That was very gratifying,” Saffa said of Centennial and Simmons joining the loan syndication. “I had this obsession with Arkansas banks being in the syndication. I would wear their jersey to work if either of them would send me one.”