Seminole Tribe in talks to end Cordish contract

Success of Florida hotel-casinos could pay him more than $1.3 billion over 10 years

October 15, 2005|By ROBERT LITTLE | ROBERT LITTLE,SUN REPORTER

The Seminole Tribe of Florida, under fire from the IRS for building two hotel-casino complexes with tax-exempt bonds, is refinancing the projects with taxable bonds and trying to sever its ties with the developer and financial adviser who initiated the deal - Baltimore's David S. Cordish.

The Seminoles say their decision to seek a buyout of Cordish's contract was based not on their tax problems but on the wild success of the two casinos that Cordish built for them, which seem certain to pay him - and the tribe - more money than they apparently anticipated.

Tribal officials say they have begun negotiations to terminate their 10-year contact with Cordish Co. subsidiary Power Plant Entertainment, which developed and arranged financing for the Seminole Hard Rock Hotel & Casino complexes in Tampa and Hollywood, Fla. Neither side would discuss the possible terms, but the bond-rating agency Fitch Ratings Ltd. said the tribe would likely need to issue bonds to finance the "significant increase in debt" that a buyout would demand.

"It's not likely that this will be resolved immediately," said tribal spokesman Gary Bitner.

The Seminole Tribe also would not say how much money Power Plant is expected to earn from the Hard Rock deal, which grants Cordish and his partners almost 30 percent of the casinos' net profits. But financial reports from the two casinos suggest Cordish is on track to exceed the $1.3 billion fee estimated last year in a series of articles published by The Sun.

The Seminole Hard Rock operations, which opened fully in May 2004 and cost roughly $455 million to build, were the first Indian hotel and casino complexes to use tax-exempt government bonds as part of their financing. Cordish, a top developers of urban entertainment projects, joined with former Donald Trump associate Richard T. Fields to design and develop the two projects and assemble the team of lawyers and advisers who issued the bonds.

The IRS declared in a preliminary ruling last year that the bonds were not validly issued and that the Hard Rock sites were not eligible for tax-exempt financing because they are not "essential governmental functions."

Since initiating its audit of the Seminole bonds, the IRS has opened at least eight similar audits, altering the nature of Indian financing across the country and sparking the ire of tribes that argue the government is being too restrictive of Indian bond issues.

While continuing to contest the IRS decision, the Seminole Tribe closed this week on $730 million in taxable bonds that it will use to refund its tax-exempt bonds and to refinance other debt from its casino operations. The tribe, its initial bondholders and the municipal agency in Florida that issued the tax-exempt bonds on the tribe's behalf could still face penalties or settlement payments related to the IRS' determination, but Fitch Ratings said it expects such penalties to be "minimal."

Tribal officials have declined to discuss their deal with Cordish since it was finalized in September 2001, but they acknowledged yesterday that Power Plant can expect more than $1 billion in fees from the 10-year deal.

"The Tribe believes the original deal with Cordish was fair, given that there was no way to predict, in advance, the huge success of the Seminole Hard Rock Hotels & Casinos," the tribe said in a statement. "Based on the success of these projects, the Tribe believes that a buyout is now in the best economic interest of the Tribe and its members."

After The Sun's stories in 2004 estimating his 10-year fee at more than $1.3 billion, Cordish called the estimate "absurd" and said reports of lavish profits ignored his considerable risk, which he estimated at $130 million.

Financial reports from the two casinos since then suggest that Power Plant can expect to exceed the estimates. In the 16 months since the casinos opened, Power Plant's monthly fees have totaled more than $170 million, the reports show. The Cordish group also was paid $28.7 million in developer fees and financing fees, according to its contracts with the tribe.

Even if the casinos' monthly revenue remained stagnant for the next nine years, Power Plant's fee would be roughly $1.275 billion. But the Hard Rock Hotel & Casino complexes that Cordish built for the Seminole Tribe have become one of the most successful and profitable Indian enterprises, and revenue has soared since they opened. In August the two casinos took in more than $74 million, compared with $54 million in August 2004. Power Plant's fee in August, the most recent month for which reports are available, was more than $23.8 million.

Cordish declined to discuss his dealings with the Seminole Tribe but noted, through a spokeswoman, that the Hard Rock projects are largely responsible for placing the tribe on a firm financial footing. Fitch Ratings granted the tribe's most recent bond issue a rating of A-minus based largely on the "strong financial performance" of the Hard Rock casinos.

"We are thrilled that the Tribe is enjoying strong financial rewards from the developments," Cordish said in a statement.

Negotiations with the Seminoles are not Cordish's only effort to preserve his share of the Hard Rock profits. He, Fields and other leaders of the Power Plant team also are contesting a lawsuit by Trump claiming the group landed the Hard Rock deal by making the tribe's then-leader believe they were Trump affiliates. Cordish has called the suit "ludicrous."

robert.little@baltsun.com

For Sun coverage of Baltimore developer David S. Cordish's deal to finance two hotel-casino complexes for the Seminole Tribe, go to baltimoresun.com/cordish.

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