Published: Tuesday, December 7, 1993
Byline: By BRUCE EGGLER Staff writer
The revised lease for the Rivergate casino negotiated between Harrah's Jazz Co. and Mayor Sidney Barthelemy's administration will give the city about $2 million more a year than the lease approved last spring by the city and developer Christopher Hemmeter, City Hall sources said Monday.
The sources also said two major changes occurred in the casino picture during the past week:
One of the country's largest title insurance companies has promised to provide title insurance for the Rivergate site in spite of a lawsuit challenging the city's right to lease the site for a casino. Such a guarantee would mean Harrah's can demolish the Rivergate and start building the permanent casino before the suit by lawyer Thomas Tucker is settled.
Harrah's will not finance its local project in two stages, as it announced last week. Harrah's planned first to raise $265 million to open a temporary casino at the Municipal Auditorium, later raising $405 million to finance the permanent casino. It also wanted a 20-year lease on the auditorium, in case Tucker's suit prevented the permanent casino from opening.
Fearing that under those conditions Harrah's would have little incentive to build the permanent casino, the city insisted on a shorter lease, probably two years or less, and that the entire $670 million be raised at once.
Sources also said the lease provides that as soon as Harrah's raises any of the $600 million it intends to borrow, the company must pay the city the second $15 million up-front payment due under the lease approved in April by the City Council and Hemmeter's Grand Palais Casino Inc.
Because Harrah's wants to open the temporary casino in April, the city is almost guaranteed to receive the $15 million in the first quarter of 1994, the sources said. The $15 million is due Dec. 27, but that date probably will be extended, they said.
"Everybody now has a common interest to get the temporary casino open as soon as possible," one official familiar with the lease said.
After the state casino board chose Harrah's over Grand Palais as casino operator Aug. 11, Hemmeter's company joined forces with Harrah's Casino Hotels and a group of 10 local investors in a three-way partnership known as Harrah's Jazz Co.
The revised Rivergate lease and an agreement spelling out how the permanent casino must be built will be submitted today to the Rivergate Development Corp., the public-benefit corporation set up by the city to act as landlord for the casino.
Barthelemy said he expects the corporation's board to approve the documents Dec. 14, the same day the City Planning Commission is expected to approve Harrah's application to build the permanent casino and two nearby parking garages.
If those deadlines are met, the City Council could vote on all the documents, plus a lease for the auditorium, on Jan. 6, although it probably will not act until Jan. 20.
Harrah's officials hope the state casino board will add its approval by Feb. 2, letting the company conclude its financing a day or two later. Of the $670 million, $200 million is expected to come from Bankers Trust Co. of New York, $400 million from the bond market and $70 million from the developers, divided equally among the three partners.
The sources said the financial terms of the revised lease parallel those of the Grand Palais lease.
The city is guaranteed annual revenue equivalent to a 4.99 percent ownership of the developers' company. However, because Harrah's Jazz Co. is a partnership and not a corporation, sources said, the city's share will amount to about 7 percent, netting the city about $2 million more a year than under the previous lease.
Also under the lease, the city is guaranteed several up-front payments plus the greater of these:
$12.5 million a year the first 15 years the permanent casino is open, rising to $14.4 million a year in years 16 to 20, to $16.9 million a year in years 21 to 25, and by $2.5 million a year every five years thereafter. If dockside riverboat gambling is legalized in Orleans Parish, the payments would stop rising.
A sliding percentage of the casino's annual gambling revenue, starting with 3 percent of the first $500 million and gradually rising to 7.61 percent of revenue above $1.3 billion.
The lease guarantees $2 million a year for the Orleans Parish School Board.
Although the auditorium lease has not been finished, it will give the city 5 percent of the temporary casino's gambling revenue and 6 percent of its non-gambling revenue. The city also will get $16 million to $18 million worth of permanent improvements to the auditorium, some improvements to Armstrong Park and rent on city-owned land to be used for parking.
The Rivergate lease is for 30 years, with three 10-year options to renew.
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