International edition
September 20, 2021

A us$ 770 million operation

Las Vegas Hard Rock Hotel & Casino acquisition complete

(US).- Morgans Hotel Group announced that the company and its equity partner, DLJ Merchant Banking Partners, have completed the acquisition of the Hard Rock Hotel & Casino in Las Vegas and related assets.

We now have a strong foothold in Las Vegas, one of the largest and fastest growing hotel markets in the U.S., which is consistent with our strategy of expanding our presence in key markets. We believe that the addition of the Hard Rock to our unique portfolio of properties will create value for all our shareholders and be a strong contributor to MHG's long-term growth and profitability,” said Ed Scheetz, President and CEO of MHG.

'We are pleased that all the pieces of the Hard Rock transaction are now in place,” said Steven Rattner, Managing Director and Head of DLJ Merchant Banking Partners. “MHG is a world-class operating partner and we are excited about working with them to transform the Hard Rock into the premier boutique property in Las Vegas. The Hard Rock has enormous potential and we look forward to moving ahead with the many opportunities related to the Hard Rock assets”

The purchase price for the Hard Rock and related assets was approximately us$ 770 million. MHG is funding one-third of the equity, which is approximately us$ 57.5 million, and DLJMB is funding two-thirds of the equity, which is approximately us$ 115 million. Under the terms of the joint venture agreements, DLJMB agreed to fund 100% of the capital required to expand the Hard Rock property, up to a total of an additional us$ 150 million.

MHG will have the option to fund the expansion project proportionate to its equity interest in the joint venture. The remainder of the purchase price was financed with mortgage financing under a credit agreement entered into by the joint venture. The credit agreement provides for a secured term loan facility, with a term of two years or more, consisting of a us $760 million loan for the acquisition including renovation and financing costs and reserves, and a loan of up to us$ 600 million for future expansion of the Hard Rock.

In connection with this financing, MHG and DLJMB entered into joint and several guaranties of completion of the expansion project, certain mandatory prepayments under the loan, and of specified matters that are exempt from the non-recourse terms of the loan. DLJMB has guaranteed reimbursement to MHG of two-thirds of any guaranty payment MHG is obligated to make, other than the completion guaranty for which MHG has the first us$ 50 million of liability.

MHG and DLJMB entered into a property management agreement under which MHG will operate the hotel, retail, food and beverage, entertainment and all other businesses related to the Hard Rock Hotel & Casino, excluding the casino. Under the terms of the agreement, MHG will receive a management fee equal to 4% and a chain service expense reimbursement of all non-gaming revenue including casino rents and all other rental income. MHG can also earn an incentive management fee of 10% of EBITDA above certain levels. The term of the contract is 20 years with two ten-year renewals and is subject to certain performance tests beginning in 2009.

A subsidiary of MHG, upon completion of its tender offer for all of the us$ 140 million aggregate principal amount of 8 7/8% Second Lien Notes due 2013 of Hard Rock then outstanding, purchased approximately us$ 139 million aggregate principal amount of such notes, which were canceled in connection with the acquisition. Hard Rock effected a covenant defeasance with respect to the balance of the notes.

MHG also entered into a definitive lease agreement with Golden Gaming to operate the casino at the Hard Rock. Under the lease, the base rent is us$ 20.7 million per year payable monthly, plus reimbursements for certain expenses. Golden Gaming is entitled to a management fee of us$ 3.3 million, also payable monthly. The gaming assets were sold to Golden Gaming for a note with a principal amount equal to the net book value of the gaming assets.

Casino EBITDA in excess of the rent and management fee amounts will be distributed 75% to Hard Rock for payment of principal and interest on the gaming asset note and any other loans to the lessee and 25% to Golden Gaming. On January 25, 2007, Nevada gaming regulators unanimously approved the application for its license to operate the casino at the Hard Rock.

“We are excited to serve as the casino operator for the Hard Rock, which is one of the premier gaming and entertainment resorts in Las Vegas,” said Blake Sartini, President and CEO of Golden Gaming. “We look forward to working with MHG to transform the Hard Rock into an even more successful operation in the fast-growing Las Vegas market.”

In connection with the transaction, Wachtell, Lipton, Rosen & Katz is acting as legal advisor to MHG, and Brownstein Hyatt Farber Schreck is acting as Las Vegas regulatory counsel.

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