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Dan Freed
An Atlantic City casino project backed by Morgan Stanley (MS Quote) has not been able to attract sufficient financing, creating another headache for the firm at a time when it is fighting to secure its future.
Widespread reports have said the New Jersey project will cost at least $2 billion. However, a source close to Morgan Stanley says that number is too high, though this person wouldn't say by how much. For now, Morgan Stanley is the project's only financial backer to be publicly announced. The casino will be operated by a newly created company called Revel Entertainment. Morgan Stanley spokesman Mark Lake says the firm's exposure to the project is not material and adds the company is in discussions with various possible partners to provide debt or equity backing for the still-unnamed casino. He declined to be more specific. An executive close to Morgan Stanley acknowledges that the casino will be "over-equitized day one," which will result in lower returns than the bank had originally projected. Given all the problems Morgan Stanley is facing, the casino is comparatively minor. But because Morgan, like many firms, essentially cannot access the long-term debt markets, additional stress to an already strained balance sheet is the last thing it wants. Brad Hintz, analyst with Sanford Bernstein, says banks are not providing construction loans at the moment, so he expects Morgan Stanley to have to finance the project, which is about halfway completed, by itself. "It is a cash call on the holding company, and let's face it: They've got a trillion-dollar balance sheet," he says. "There's usually a lot of liquidity in a trillion-dollar balance sheet, but $2 billion dollar bridge loans are not favorable things."
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