State-supported resort is struggling

Business is slow, and debt dogs Rocky Gap

Sun Special Report

September 21, 2007|By James Drew | James Drew,Sun Reporter

FLINTSTONE -- On a recent weekday, Wit Kosicki enjoyed the view of Evitts Mountain as his wife received a massage inside the Rocky Gap Lodge & Golf Resort.

Kosicki, an insurance broker who has lived in Timonium for 20 years, was surprised to find only a smattering of people in the upscale restaurant for lunch. Only a few had rented boats or bicycles on a sunny day when the noon temperature hit 75 degrees. The indoor pool was empty, and the fairways on the Jack Nicklaus-designed golf course were surprisingly uncrowded.

"It's very quiet," he said.

Nearly a decade after opening, the state-supported resort in Allegany County has struggled with operating losses that, while gradually shrinking, totaled $1.1 million last year. It has missed payments to bondholders, and the project's owner, the Maryland Economic Development Corp., is negotiating with them to restructure the debt.

In fact, the resort is in danger of defaulting on its debt, said Bruce A. Myers, the state's chief legislative auditor.

"How long can this go on?" asked Myers. "Ten years from now, will there be a larger deficit?"

He has urged MEDCO to craft a plan with two state agencies to fix the financial problems troubling the resort. MEDCO has pledged to respond by the end of the year.

As of mid-2006, the latest figures available, the project owed $26.3 million to private bondholders and an additional $12 million to the state Department of Business and Economic Development.

Robert C. Brennan, MEDCO's executive director, said he is trying to negotiate a deal to lower the interest rate on the revenue bonds issued in 1996 to build the resort and to extend their term. He and other supporters of the project think slot machines might play a role in its revival, possibly in a facility to be built nearby, if the state legalizes the expansion of gambling.

Several times in recent years, the private bondholders have reached agreements with MEDCO so the project could delay debt payments. That "patience" has enabled the 215-room resort to amass about $1.4 million in net cash flow in 2006, Brennan said.

"If they took all of their money, we would be out of business," he said, referring to private bondholders Calvert Asset Management Co. of Bethesda and New York City-based Davidson Kempner Capital Management.

Although the bondholders can't tap state tax revenue to recover their money, the state could lose $8.5 million that the Department of Business and Economic Development lent to MEDCO for the resort and $3.1 million owed to the Department of Natural Resources for ground rent, said Myers, the legislative auditor.

The resort was built in the 3,000-acre Rocky Gap State Park, with the state spending $16 million toward construction.

An audit of the Rocky Gap resort finances, commissioned by MEDCO last year, concluded "there can be no assurances that the operating results of the project will improve and that the ... bondholders will not exercise their default remedies."

Brennan said the bondholders are unlikely to foreclose because the resort no longer would be tax-exempt, which saves about $800,000 per year in costs.

Dan Hayes, a senior vice president of Calvert Asset Management Co., which owns $5 million in the resort's bonds, said foreclosure never has been considered.

"We don't want to be in the position of operating a resort. Foreclosure is not the solution. The debt needs to be restructured. This was a good deal for the state. Anyone who says otherwise is wrong. Yes, the bondholders have been harmed. But the fact remains, this asset is not going away. It has a long economic life," he said.

A representative of Davidson Kempner Capital Management, which owns $21 million of the bonds, declined to comment.

Championed by then-Gov. William Donald Schaefer and then-House Speaker Casper R. Taylor Jr., the resort was presented as a way to attract visitors from Baltimore, Washington and Pittsburgh. It opened in 1998 during the administration of Gov. Parris N. Glendening.

Brennan said the resort has struggled in the winter, especially on weekdays, and the "big tourist destination" in Western Maryland is Deep Creek Lake in Garrett County. That area also features an artificial whitewater course and Wisp ski resort.

Cumberland Mayor Lee N. Fiedler said the resort has had a positive, if hard to document, impact on the local economy. "Tourism is a tool to showcase your community," he said.

In downtown Cumberland, Vicki Macy said she has gained customers at her dress shop that opened in March from women visiting the resort from Baltimore, Washington, Virginia and states as far away as Michigan and California.

But Phillip Gower, a retired truck driver standing outside a barbershop in Cumberland, said he doesn't believe the resort has had much of an effect on the area's economy beyond the area residents who work there, 175 and 300 depending on the season.

"It's a playground for the political figures down-state," he said.

The resort's future has become part of the debate over legalizing slot machines.

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