Bankruptcy Court Approves Interim Financing

Greektown Casino Bankruptcy: Bankruptcy Court Approves Interim Financing

6/11/2008
By: Peter J. Kulick On June 4, 2008, the United States Bankruptcy Court for the Eastern District of Michigan approved an order authoring an interim financing plan which will allow Greektown Casino to borrow up to $51 million. Greektown Casino has publicly stated that the interim financing is necessary to ensure the availability of sufficient funds to pay the costs of constructing its $332 million permanent casino in Detroit, Michigan. One of the interesting legal questions raised by the Greektown Casino bankruptcy petition involves the interplay of the Michigan Gaming Control Board's ("MGCB") regulatory oversight with the jurisdiction of Bankruptcy Court's. Greektown Casino has vocally stated that its bankruptcy petition was prompted, in part, to circumvent debt-to-equity ratios imposed by the MGCB. As a result, questions have arisen about whether Greektown can successfully eliminate financial covenants established by the MGCB. The Bankruptcy Court's interim financing order provides a partial answer to what regulatory role the MGCB will have during Greektown Casino's bankruptcy proceedings. Specifically, the order provides that: **Nothing in this Order shall constitute or be construed as a determination regarding the impact of the filing or continuation of these Chapter 11 Cases on the ongoing regulatory powers of the [MGCB], and all rights of the MGCB with respect to its ongoing regulatory powers, and the rights of any other party in interest to oppose any interpretation, or the applicability or extent, of any ongoing regulatory powers are expressly preserved.** Additionally, the order further provides that Greektown Casino "shall obtain all required MGCB approvals, including those required by R432.1508 and R432.1509, before executing the proposed credit agreement."{1} The MGCB administrative rules permit a licensed casino to borrow funds to finance casino operations; however, the administrative rules expressly require approval of the MCGB. The MGCB held an emergency meeting on June 5, 2008 to consider approval of the Greektown Casino's $51 million interim bankruptcy financing. At the emergency meeting, the MGCB consented to the Greektown Casino interim financing arrangement. The potential thorny issue regarding whether the MGCB continued to maintain regulatory oversight pertaining to the ability of a casino to obtain loans to finance casino operations was side-stepped by the Bankruptcy Court's interim order requiring MGCB approval and the MGCB's subsequent consent to the interim financing. As the Greektown Casino bankruptcy proceeding continues and a final financing agreement is proposed, the issue with respect to MGCB's regulatory authority may yet arise. {1}R432.1509 provides that "[a] person that holds a casino license in Michigan, or a holding company or affiliate that has control of a person that holds a casino license in Michigan, may not enter into any debt transaction affecting the capitalization or financial viability of its Michigan gambling operation or casino operation without first receiving the approval of the [MGCB]." (Emphasis added.)
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