Boyd Gaming Corp (BYD) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2008 Boyd Gaming earnings conference call. Al this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this call.

(OPERATOR INSTRUCTIONS). As a reminder, this call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Keith Smith, President and Chief Executive Officer. Please proceed.

Thank you, operator, and good morning, everyone. Welcome to our third quarter conference call. Joining me on the call this morning is Paul Chakmak, our Executive Vice President and Chief Operating Officer.

Before we begin, I need to remind you that our comments today will include statements relating to our future results including the financial outlook and expectations for our fourth quarter 2008, our expansion and development projects, and other market business and property trends that are forward-looking statements within the Private Securities Litigation Reform Act. The Company undertakes no obligation to update or revise the forward-looking statements whether as a result of new information, future events or otherwise. As actual results may differ materially from those projected and any forward-looking statements as a result of certain risks and uncertainties, including but not limited to those noted in our earnings release, our periodic reports and our other filings with the SEC.

I would also like to remind everyone during our call today, we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today, both of which are available in the investor section of our website at boydgaming.com. We do not provide a reconciliation of forward looking measures due to our inability to project special charges and certain expenses, including free open expenses. Finally as a reminder, we are broadcasting this call on our website at boydgaming.com and streetevents.com.

Earlier this morning, we released our third quarter results. Needless to say, this was a difficult quarter for us. The softness in the business that we began to see in the fourth quarter of 2007 has continued to accelerate throughout the year as economic conditions have worsened. The situation was made worse by the closure of two of our Louisiana properties during the quarter as a result of Hurricanes Gustof and Ike, and by new competition in both Northern Indiana and Atlanta City.

Our third quarter results reflect these facts as we experienced our largest year-over-year declines during the quarter. Without question, it has been a difficult for the Company, for the gaming industry, and for consumer-driven businesses generally. While the third quarter earnings are a reality of today's economy, we have made important progress in strengthening key areas of our company. This progress has positioned us to better deal with the current environment and enhance our overall competitiveness.

First the implementation of our new Loyalty One card program, Be Corrected, was completed during the quarter, enhancing our brand appeal and strengthening our foundation. Second, our efforts to refresh our restaurant offerings, including the recent strategic partnership with TGI Friday's, is another area where we have refined our business model looking toward the future. And projects like the Water Club, and our new hotel of Blue Chip enable us to elevate our product offerings in high potential and highly competitive markets. This gives us the ability to compete more effectively today while having the products to grow the business when economic conditions normalize.

Moving on to our Echelon development. It was only 88 days ago that we announced the suspension of construction and began the process of working with our contractors to suspend or terminate approximately 70 contracts for work at Echelon. When we suspended construction, we had three primary objectives; bring the work to a quick, safe, and logical suspension point in order to conserve as much capital as possible, protect the value of the assets that were already in place, and preserve the positive relationships we built with our construction partners. I'm pleased to report that we have accomplished each of these goals for substantially all of the contracts and commitments, and are quickly coming to a resolution of the few that remain.

In addition, the joint venture agreement for the retail promenade with General Growth Properties dissolved earlier this month and neither party has any further cash obligations under that agreement. Similarly, Morgan's Hotel Group and Echelon have amended the joint venture agreement for two hotels at Echelon. Each party remains a 50% partner in the deal with only nominal future contributions are required from either party. The amendment offers both partners the flexibility to exit the venture should their circumstance change.

With respect to capital expenditures on the Echelon development, as of September 30, we have spent approximately $525 million and expect to spend an additional $150 million over the next two quarters on items primarily related to steel fabrication. These figures represent cash expenditures, not accounting accruals. As a result of the continued spend, we expect to continue capitalizing interest on the project through December 31. Given what has happened in the market since we announced the suspension of our Echelon project on August 1, it is unlikely we will resume construction in 2009.

Nonetheless, we remain committed to having a meaningful presence of the Las Vegas Strip, and we will use this time during 2009 to prepare alternative development options to consider for Echelon. These options will include developing the project in phases, exploring alternative capital structures for the project, scope modifications to the project, and additional strategic partnerships. It will take several months to develop and consider the full range of options, and it will take several more months to properly evaluate these options against the backdrop of the conditions of the credit markets and the conditions of the broader economy. We will update you when we have a more definitive strategy on how and when we will move forward.

With respect to our capital structure, Boyd Gaming is fortunate to be one of the few gaming companies to have a strong balance sheet during these extremely turbulent economic times. We recognize one of our most valuable assets is our bank credit facility. This credit facility provides us access to capital and the flexibility we need in this environment to take advantage of unique opportunities that may become available. Our leverage under the credit facility at the end of the third quarter is less than 5.5 times. We are currently in compliance with all of our covenants under the credit facility and we expect to remain in compliance.

Last quarter, we announced that our Board approved a $100 million share repurchase program. However, given the extreme volatility we have seen in our operations, our focus has shifted to managing our debt levels and maintaining a comfortable cushion under our leverage covenant. As such, we did not repurchase any shares in the third quarter.

At the same time, the deep discount on our bonds not only offered attractive return to our shareholders, but they served the additional purpose of allowing us to reduce our overall debt and increase earnings per share. As a result of these advantageous market conditions, we purchased approximately $8 million of our bonds in the third quarter, and an additional $93 million over the last several weeks. There is no doubt that we're going through a turbulent period, the prudent management of our capital and operating expenses are providing us with resources and flexibilities we need to deal with the economic downturn.

However, we not are not satisfied to merely survive these difficult times. We are continuing our efforts to build a stronger company; one that will enable us to capitalize on growth opportunities when we finally emerge from this downturn. Now I would like to turn the call over to Paul Chakmak, our Chief Operating Officer, to provide some additional details on the quarter.

Thanks, Keith. Hello, everybody. Today it is clear we are enduring the most difficult economic conditions in a generation, and our third quarter results reflect that reality. We are acting aggressively to manage the business through this difficult period. We continue to work to make our properties more competitive and to control costs wherever possible.

As Keith noted, we have the balance sheet and cash flow needed to guide this company through these challenging times. Generally, our core businesses remain intact. And we have actually shown increases in our rate of play from our two top tiers, Emerald and Sapphire, in both the Las Vegas locals, and Midwest and South regions. This bodes well for how players value our new Be Connected loyalty program. Unfortunately, this increase has been overshadowed by significant declines we have experienced in our lower tier, Ruby, and those customers not members of our program. And this provided to be a prevailing driver in our Q3 results.

Few communities have been hit as hard by the economic downturn as the Las Vegas Valley. Housing prices in Las Vegas have fallen significantly, and severe cutbacks in the construction and service sectors are not providing the valley with the job growth that it's used to. As a result, August marked the first month of unemployment in excess of 7%, further impacting consumer confidence and discretionary spending.

On a brighter note and as you may be aware, we have been working on a number of strategic changes to our restaurant offerings. By the end of November, our lineup will include well-know national brands such as TGI Friday's, Dunkin Donuts, Baskin Robbins, Fuddruckers, and [Sebaro]. And by expanding and refreshing our restaurant offerings, we are giving our customers more reasons than ever before to visit a Coast casino. We believe this ongoing evolution is crucial to improving our market share in this challenging environment.

In downtown Las Vegas, we are not only being affected by the current state of the economy, but also by reduced airline capacity as two major carriers that ran Hawaiian routes cease operations. As a result, the ability for Hawaiians to get to Las Vegas has been more difficult as scheduled airline capacity has been significantly reduced. The Midwest and South region dealt with its own challenges during the quarter. Blue Chip felt the ongoing impact of increased competition from both the north and the south, as well as construction disruption associated with its expansion program.

In Louisiana, the two Gulf Coast hurricanes forced the closure of Treasure Chest and Delta Downs for 10 days and 13 days, respectively. This was particularly impactful as it included two weekends, one of them being the traditionally strong Labor Day holiday weekend. Including the market disruption before and after the storms, the two properties were severely impacted for over half the month. Without these storms, we estimate adjusted EBITDA would have been $7 million to $8 million higher, resulting in an additional $0.05 to $0.06 in adjusted EPS.

Despite all the challenges in the Midwest and South, there are still some bright spots. Both Treasure Chest and Delta Downs have recovered well and business has already returned to pre-hurricane levels at the properties. At Blue Chip, we are nearing completion on our $130 million expansion and have scheduled the grand opening of our new 300-room hotel, spa, restaurants, and meeting space on Thursday, January 22. We look forward to offering Blue Chip's patrons a designation gaming experience that will be unique to the region.

The economic downturn has been particularly severe in the Northeast, and the entire Atlantic City market has felt the impact with gaming revenues down 6.7% for the quarter. This downturn has been exacerbated by new competition from Pennsylvania casinos which continues to cut in to Atlantic City's market share. Borgata continued to outperform the rest of the market, but it was not immune to these factors which we expect to continue in 2009.

There's little doubt the opening of the Water Club further reinforced Borgata's market leading position. And there is no question that Borgata's gaming revenues benefited from the new hotel. Weekend business at the Water Club has been very strong, and we are generating a significant premium in both cash ADR and gaming contribution per guest compared to already strong results at Borgata.

Midweek business at the Water Club has been softer than we anticipated as current economic conditions and a more competitive environment in Atlantic City marketplace have made it difficult to fill these additional rooms midweek. Overall higher promotional expense due to a more competitive environment as well as launch expenses associated with the addition of the new hotel negatively impacted profitability for Borgata. Lastly, on a positive note, as you may have heard, the Atlantic City City Council voted yesterday to suspend the new smoking ban. We are supportive of the City Council's decision as we felt implementing the ban would have led to substantial declines in the market. In the end, we believe it best serves our customers and our employees.

Earlier I mentioned the importance of maintaining a competitive product during these difficult economic times. We took a big step forward in that direction during the quarter when we completed the rollout of Be Connected, our nationwide player loyalty program. With the launch of Be Connected at our three downtown properties, we have completed the nationwide rollout of the program.

Our customers can now use a single card to earn and redeem points. With the nationwide network in place, we are now working to leverage Be Connected to increase customer loyalty across the country. An example is Play Your Way to Vegas, a new marketing initiative we launched throughout the Midwest and South region. The goal is to encourage our Midwest and South customers to consolidate their play with Boyd Gaming with a goal of winning a trip to one of our seven major Las Vegas properties. In fact, initial results of our new players card program in the MSR region showed a meaningful increase in cross property play compared to the prior year. By connecting our downtown properties with the Coast casinos, we also believe there is a new opportunity to drive cross-property play throughout the Las Vegas Valley.

Now before we open it up for questions, I wanted to take a second to discuss our thoughts on the current quarter. Keith provided guidance related to Echelon. However, you are all aware that it is becoming increasingly difficult to accurately forecast financial results in the current economic climate. As a result, we will not be providing a forecast of adjusted EBITDA or adjusted EPS for the current quarter. We hope to resume providing more specific guidance once we have more clarity relative to the business trends in the markets where we operate. With that, operator, we'll take some questions at this time.

(OPERATOR INSTRUCTIONS).

Please stand by while a list is compiled. Your first question will come from the line of Mr. Joseph Greff from JP Morgan. Please proceed.

Paul, the -- in the third quarter, I want to say the locals market -- the operating leverage there was worse than what you saw in the first two quarters. Obviously the year-over-year revenue change was greater. Is that a function of the revenue performance? Is that a function of your spending more in front of a competitor opening? Is it just that you have done a good job the first half, in terms of the taking out expenses? How do we think about the operating leverage going forward? Thank you.

Well, Joe, we have worked very hard this year refining the expense profile with the sheer fact that obviously revenues are down. As you saw a continued decline in the Las Vegas local revenue base, we were still able to certainly preserve some of that profitability. But do your point, margins did erode in the third quarter based on the higher decline in the quarter than in previous quarters. We continue to work very hard at adjusting the operating expense side of the overall plan.

The fact of the matter is, there is a significant amount of competition that has been created obviously in the Las Vegas locals' market as a result of just competitive pressure between companies and certainly some new openings. Certainly a part of that was associated with being strong and competitive in the wake of those events. It's a little bit of both.

Okay. I know you are not going to give operating items for the 4Q, but can you walk through what you think the CapEx will be outside of the Echelon spend? You mentioned that you are going to be capitalizing interest on Echelon through the end of December. Is there a chance that you capitalize some of it through the first quarter of next year if your spending slips in to the first quarter?

Probably -- on the Echelon question first -- probably unlikely it will good go in to the first quarter. This is really driven by different accounting rules and the magnitude of that spend. To the extent we do spend what we anticipate in the fourth quarter, the smaller amount that will trail into the first quarter -- the number that Keith gave, probably would not allow us to capitalize in the first quarter. But if that timing changes, certainly we will be forced to revisit that decision.

As it relates to capital outside of Echelon for the fourth quarter, as you would expect, the numbers are relatively small with -- really, them coming and the combination of two fronts. One would be our typical ongoing -- I'll call it maintenance program, including finishing up what is really more than maintenance. That's the repositioning of certain restaurant outlets that we have throughout the Las Vegas Valley. That will run about $20 million in total. The balance would be the Blue Chip spend itself which right now, we are forecasting for the fourth quarter to be, oh, about -- call it about $15 million.

Okay. And do you think your maintenance is sub $100 million right now? Or can you get away with spending $80 million a year in maintenance?

We can probably at this point run the business sub 100. Albeit, some of the things that we opportunistically put off, we will deal with in future quarters or in the following year.

Great. And then my final question, and then I'll let somebody else go. Penn National yesterday talked about different performance in October and mentioned the Southeast performing a bit better. You just comment what trends you seeing October, maybe relative to September's performance by market. Thank you.

Well, generally speaking, I think we would probably echo maybe what Penn said per your comments. I didn't listen to their call. The middle part of the country is performing well, particularly the Southern section of our region -- of the Midwest and South, relative to prior-year results, probably not surprising given there is still a substantial amount of economic activity in the South particularly in the Texas, Louisiana corridor. Obviously, I don't think there's any different view relative to my comments for the Las Vegas Valley.

Great. Thank you.

Your next question comes from the line of Celeste Brown from Morgan Stanley. Please proceed.

Hi, guys. Good morning. Paul, can you discuss a little bit further the new restaurants you putting in to the Coast properties? Is that -- does it help save money? Or it is just the brand names? It sounds like they are mostly national chains? Is it just that they draw in additional patrons, more than you would normally get.

It's a little bit of both. We made a strategic decision to target national brands, because we think that's is exactly what the consumer today -- our customer wants. Providing that experience as opposed to a stand-alone restaurant separate to a casino that they may choose and the integration associated with that is a very strong driver for us on both sides of the equation, the non-gaming and gaming revenue piece.

Generally speaking, the TGI Friday's restaurants in particular, have replaced in the case of the Gold Coast And Sam's Town coffee shop shop operations that the Company owned and operated. The economic tradeoff between those two models is substantially in our favor. It's certainly a -- becomes a profit center for us in a relatively material way given the dynamics of how that business runs. The other outlets that I mentioned are generally adds to existing properties where we felt additional food capacity was warranted given volume drivers in those properties. We'll continue to do more of this both with national brands as well as very well-known local restaurant organizations that we've added to our properties as well.

Do these national changes help with -- in terms of marketing, do they have signs up -- TGI Friday's at Coast Casinos, so it saves you some money there? And finally, this question is for Josh, how much cash do you need to run your business? In terms of cage cash, et cetera?

On the Friday's example, or for that matter Fuddruckers or any others, the national marketing that these companies do is clearly a benefit to us, both in TV and in print media. That is just clearly additive to the marketing that we would normally and already do for those outlets as a part of our company. Save a little time, I'll just answer the question on cash. Having -- you saw at the end of the third quarter, our number was about $123 million or so. Year-end cash balances, typically run a little bit higher simply because of the New Year's Eve holiday weekend that obviously hits at the end of the year, so you can add a bit to it. I think we ran about $165 million last year and so probably somewhere in between, Celeste, is the answer of where your expectation should be.

Thank you.

Your next question comes from the line of Lawrence Klatzkin from Jefferies. Please proceed.

Hi, guys. As far as One Cannery how has that affecting Sam's Town and what do you see as far as promotional competition?

When Cannery initially opened, we certainly saw an impact. I think when a competitor opens next door, you see your customers go over and visit. The unfortunate part about the opening of Cannery was I don't think it brought anything particularly compelling to the area. It didn't drive a tremendous amount of new traffic, so we have seen an impact at Sam's Town.

Okay. Josh, a question about the debt repurchases, so we can book for the fourth quarter the profit -- which issues did you buy and what price did you buy them at?

Larry, I'll take that. As Keith mentioned we repurchased about $93 million of debt so far in the current quarter. That was predominantly associated with the 7.75 bonds that we have been relatively, systematically buying at opportune times. Really, you go back even to the first and second quarter of the year, in much smaller amounts.

Those bonds now trade in the 70s. We had been a buyer up in the 90s as well earlier in the year. As a result of that based on recent trading levels, I think you can do the math and see it is a 20-plus cent per dollar pickup on the gain. And then, the other two issues obviously would be substantially more than that

But you don't have amounts on interest expense and everything else?

In all told for the quarter, interest expense, you've got in keep in fact the LIBOR was substantially higher as it was in the third quarter as well. Interest expense could actually be up a little bit quarter-over-quarter, if nothing else flat quarter-over-quarter, assuming if LIBOR is substantially higher than what it was for most of the third quarter.

All right. All right. That makes sense. As far as your bank covenants go, what is your tightest covenant right now? Spending a lot, there shouldn't be a lot of spend going forward, but how tight are you?

Keith mentioned, we're under 5.5 times. We only have one covenant and that is total debt to EBITDA as defined. We are under 5.5 times as of the third quarter. The covenant is 6 times through the end of the year, so we'll obviously work to stay inside of 6 times at the end of the year. The covenant goes up to 6.5 times in the first quarter of next year.

All right. Excellent. As far as Atlantic City competitive environment, is the promotional spending pretty aggressive right now? And do you think everyone is going to undue their smoking areas or do you think some people are going to keep it like it is?

Larry, this is Keith. From a promotional standpoint, it has been fairly aggressive all year. We at the Borgata launch -- what is probably one of our most aggressive promotions -- a five times promotion in anticipation of the smoking ban going into effect. The market is very competitive and continues to be very competitive, partially to offset smoking and partially to offset the impact of the Pennsylvania casinos which continue to cut into the business.

On the smoking issue with respect to the vote last night to suspend that, people have taken different positions in terms of building these smoking lounges. They think they still exist whether the patrons use them or not. My guess is the patrons will find a place to smoke on the floor as they did prior to the ban.

All right. Thank you, guys.

Your next question comes from the line of Steve Kent from Goldman Sachs. Please proceed.

Hi. Good morning. Could you talk about two issues? One is what other opportunities you have out there to reduce your costs in a more meaningful way. With some of your properties since you don't have the negative operating leverage of a significant lodging component, what can you do to reduce the expense structure? And then separately, are there any buyers or any discussion of buyers for Echelon? Have people been talking about it or thinking about it. Or have you entertained any other ideas on it?

With respect to further cost reductions, I think Paul indicated it's something we look at frankly every single day. We look to refine the business as which go. As we see revenues ebb and flow, we're always looking at it, whether it's consolidation of departments, or consolidation of functions between properties or whatever it is. We have standards that we try to keep, staffing standards and customer service standards. It's something that we look at daily with a large focus -- taking up a large amount of our time these days. I don't think there's any silver bullet out there. There's no one big idea that is going to solve the problem. It is just something that is a constant review.

Your second question with respect to Echelon, we talked about the fact we're looking at and we're going to take 2009 to look at the various alternatives. We still feel like having a significance presence on the Strip is where we want to be. We have opportunities there. We'll take 2009 and look at the different options for the Echelon site. We don't have anything else to say right now.

Thank you.

Your next question comes from the line of Justin Sebastiano from JP Morgan. Please proceed.

Thanks. What percentage of your player database is at the ruby level?

As you would expect, Justin, a large amount in terms of people. Call it 80%-plus, a relatively small amount relative to dollars of play, call it less than 20%. It's your pretty typical 80/20 rule going both directions there.

Okay. The two Hawaiian airlines that stopped flying in to Vegas, when they did stop exactly?

The two airlines were Aloha and ATA, both of which offered either non-stop, or a one-stop -- refueling stop in -- back in to Vegas. We believe in both cases, substantially all of the people on those planes were Las Vegas inbound customers. They both stopped during the third quarter. Exact date, I couldn't give you, but it was early in the third quarter -- maybe very end of the second quarter.

Okay, so it's probably -- it's not like it came in partially and we could expect a bigger drop in the fourth quarter. It's probably a similar decline, basically as far as the number that won't be coming in for the quarter.

I would agree with that, yes.

Okay. The promotional expense at Borgata that was I think the highest ever at that property, completely understandable considering opening the water pub. As far as the levels where you are now or through the fourth quarter, do you think it will come off of that $60 million-plus or are we going to probably stay up around those levels through the end of the year?

Given the current promotion that we have going on which is one of the most aggressive that we've ever had at Borgata, you'll see it continue to remain at a fairly high level.

Okay. And you guys had talked about economic data at Las Vegas -- unemployment rate, the housing market -- the [glut] still remains there. What -- is there any optimistic data point that you guys can give us regarding the locals market?

Relative to unemployment which we've always said, we think is a key driver to our locals business, you do have some additional casino openings that will occur over the course of the next few months with a couple of our competitors opening large facilities. That provides a significant amount of job creation on their own. That is certainly a positive. We'll just have to watch and see how that plays out over the end of this year, very beginning of next year as those facilities open. That's certainly a positive.

As far as the housing market is concerned, it is -- as you would expect, really, across the country. The amount of new homes being built is down substantially. It's simply a matter of working off this inventory of new and existing houses that are for sale. There has been some positive signs of that recently here in Las Vegas with real people moving in to real houses, but it's going to take some time for that to work through.

Is there -- last question, thanks. Should we just basically take it down by $93 million in this quarter? Or do you think you're going to continue to pair that number down? Thanks.

It's really just a business decision, Justin. We'll continue to make calls on how we look at the business and the capital structure on an everyday basis.

Okay. Thanks a lot.

Your next question comes from the line of Kenneth Forst from KeyBanc. Please proceed.

Had a few unrelated questions. First on the closures during the third quarter because of the hurricanes, do you have business interruption insurance or is that all going to fall under deductible?

The deductible will not be met in any of the four instances, Dennis, so there are no insurance claims that will result.

Okay. Moving to Borgata, besides the promotional staying high, was there any unusual costs of just the opening or the first couple of months overstaffing at the Water Club that we might see that $180 million quarterly operating expense come down in future quarters as you get more efficient?

Yes. With respect to any Water Club, you have to remember it formally opened in late June -- around June 27 -- with respect to the Water Club. We have -- there were a tremendous amount of launch expenses and inefficiencies built in to that first quarter as we were trying to launch and properly staff and properly -- and provide the right experience for the guests.

Yes, that's what I would assume.

I think what you saw in the first full quarter of operation of the Water Club, were very high operating expenses and you should expect those to come down going forward. I think they will probably still be somewhat elevated in the fourth quarter and as we move in to next year, they will normalize.

Okay. Also as pertaining to Borgata, depreciation was only up modestly sequentially. That surprised me with the Water Club coming on, I would have thought that depreciation would have gone up more dramatically than it did. Is the $19.5 million a reasonable run rate? And why is it not higher?

I think you have to recall that we celebrated our five-year anniversary in June -- the opening of that property. We had a lot of five-year assets that were put-off when this property was opened, so you had the the effect of new assets rolling off and depreciation falling off and new assets coming on and appreciation rolling on. The level you saw for the quarter is about right.

Okay. Great. Then lastly, I needed a clarification on the bond repurchase. You said $93 million in October so far. Is that face amount or is that how much cash you used to purchase bonds?

No, the $93 million is the face amount of the bonds purchased.

Got you. Okay. Thanks a lot.

You're welcome.

Your next question comes from the line of Rachel Rothman from Merrill Lynch. Please proceed.

Hi, guys. If I can follow up one more time on the bond repurchase. Did you say that both third quarter and the bond repurchase of the $93 million was roughly $0.70 on the dollar? Did you use cash or did you draw down on the resolver as far as buying the bonds?

The comment I made about the bond repurchases was the 7.75 had been trading in the high 70s really for the month of October. We were buying by market, as bonds are offered to us by different investments houses. You can just assume by looking at the historical ing trending levels that those were bought at those types of market prices. As it relates to the source of capital to repurchase bonds, we really don't run with excess cash, so to speak. The cash that you see on our balance sheet is related to our casino operations and is needed to run the business. Practically speaking for any type of operating need, including this particular one, there's use of the bank credit facility to fund the repurchases.

Great. And given where your bonds are trading, how are you guys thinking about the tradeoff between repurchasing your common equity currently and buying in the debt?. I know you issued $100 million share repurchase authorization last quarter, but I believe -- or it seems from the releases that you didn't use it. Is that correct? Are you viewing the debt as a better value at this point?

As I said in my earlier comments, no, we had not purchased any equity back during the quarter. Given the trade levels of the bonds, we thought that was the right opportunity. We're also concerned about the volatility in our business levels, and feel like managing our debt levels is better for us to today -- as a more prudent thing for us to be doing than repurchasing our equity. That's where our focus is at this point.

But I think on that front, it's really a constant decision between the two. The fact of the matter, given where the discounts our bonds are for that matter, anybody in the sector -- is you reduce debt, reduce interest expense, increase EPS; all at the same time by repurchasing bonds that frankly, in the case of 7.75 are practically coterminous with our existing bank credit facility so there's not a maturity trade-off between the two issues. But with that said, as we get more visibility and become more comfortable with the operations, certainly don't be surprised if we start to execute under the share repurchase plan.

Great. For modeling purposes for the fourth quarter, will you be showing the gains of the buy-in of the debt below the line or above the line?

It goes below the line just as it has been shown for the past three quarters.

Perfect. In Vegas, can you talk about any opportunities you may have to cut costs further? Because in the second quarter from a margin perspective, it looked like you guys had done a pretty terrific job of holding the line on costs. Do you think that revenue has gotten to the point now where there are no more costs to cut? Or do you feel it's prudent to just continue to spend at the rate that you have? Or should we think about further opportunities for margin in the fourth quarter in 2009?

Certainly a balance -- when you look at the margin and the business between the revenue decline and how much we can manage the expense side of the business. In the first six months, we did take a significant amount of expense out of the business, and saw less of a revenue decline. That's why the margins in the second quarter were as strong as they were. What you saw in the third quarter was a stronger revenue decline, and you didn't -- there wasn't as much expense to take out of the business.

The expense load actually was lower in the third quarter, it is just not overall reflected in the results because of the decline in revenues. We will continue to look at it. We'll continue to look for ways to cut expenses. Once again, there's no silver bullet. There's no one big idea out there that is going to reduce expenses. I think the new restaurants -- the new TGI Friday's operations that are in our Las Vegas locals properties will help. That will help trade off some expense from our coffee shop operations and we'll continue to manage the payroll and marketing expenses as we go -- we'll run the business as efficiently as we can. It's an every day conversation.

Great. Thank you so much.

Your next question comes from the line of Lee Olive from Citigroup. Please proceed.

Good morning. Couple of questions. First on Borgata, I noticed there is a debt paydown in the quarter of the non-recourse debt there. Was that a scheduled amortization or did you guys decide to prepay the loan?

Borgata benefits from an all-revolving credit facility structure, so there are no scheduled repayments. That was simply management of cash balances and opportunistically reducing debt based on cash that had been generated since the opening.

Okay. How much cash did you receive from the JV in the quarter?

We didn't take out any money out of the JV during the quarter.

Okay. Thanks. And then just on the revolver again. I know you have the ability to delay or defer the covenant step-ups for one or two quarters by the end of this year. Do you have the ability to pull them forward if you need to?

No. It is simply a one-time call to push them out one or two quarters.

One or two quarters, right. One other definitional issue, are you able to use the Blue Chip project cash flow and call that or classify that new venture EBITDA?

No.

Because it is existing property?

That is correct.

Okay. Thanks.

Your next question comes from the line of Dennis Farrell from Wachovia.

With regards to the cash distributions, when do you think they are get up to the levels that they were previously -- previous to Water Club opening?

The cash distributions from the Borgata?

Yes, the actual cash -- yes, that are flowback to Boyd.

We don't have a forecast for that right now. Sorry.

Okay. In regard to any bond repurchases -- the last time I know you guys touched on it a bunch. But the actual gain of extinguishment of debt, can you add that back to cash flow for bank -- for the covenant purposes and the bank debt?

It is cash gain so cash gains and for that matter, cash losses are added back to EBITDA. On the flip side of that, we had certainly losses related to the hurricane in the third quarter of some-plus $3 million that are losses that negatively impact EBITDA as well.

Okay. And in regards to buying debt and potentially other companies, there is a lot of value or a lot of distressed value in the industry right now. Is that something that the Company is potential set up to do now or is it something that they -- could be an opportunity in the future.

We like the value of our securities really better than anything else out there right now, and so we're focused on the existing business, and managing our debt and equity appropriately based on valuation.

Okay. And then lastly, the Dania payment, I know the Q said 2010, potentially $75 million. Is there a chance that could fall into '09? Or is that still TBD?

It's to be determined. There's certainly possibility it could fall into 2009.

Okay. Thank you.

You have a final question comes from the line of of Bill Lerner from Deutsche Bank. Please proceed.

I'm wondering what your answer to [Marnell's] blimp is going to be. That was to soften you up a little bit This one is probably going to be a little insensitive and I apologize for it. But why not -- just a strategic question. Why not write down the roughly $600 million for Echelon and delever even more aggressively than you are planning in 2009 and 2010. Obviously you are generating good free cash flow and you fix your equity that way without taking on return risk or supply risk, however you want to think about it in Vegas. I would just love to get your thoughts on why not?

The writedown of the Echelon is not necessarily one of those management options. We just don't wake up and say we have to writedown Echelon. I think the accountants have a lot to say that about that. Given our desire as I stated earlier, to have a significant presence on the Las Vegas Strip, there's no write down of the Echelon project. We're spending an extra $150 million over the next several quarters to finish up some steel fabrication and some other things. The writedown is not something we're looking at. We're continuing to explore having a presence on the strip and what form that presence should take. We think that serves the shareholders of the Company best for the long-term -- is having that presence.

Bill, the writedowns of any asset, whether it's Echelon or any part of the existing business, are based off of accounting pronouncements that are driven by some fairly technical valuation tools. To Keith's point, it's not like we can come in today and say, let's write something down and reduce the amount of assets on the balance sheet and reduce whatever it is -- depreciation and everything else accordingly. It's just not the way it works. Our focus relative to leverage is obviously on the financial leverage more commonly looked at as debt-to-EBITDA. As we work on ways to obviously get EBITDA going in the right direction, we'll being as prudent as we possibly can on managing that debt number.

What I meant really instead was why not just stop the project permanently -- exchange writedown for that. But you answered the question.

The amounts that Keith referred to that are due are based off of decisions and contracts that we have in honoring certainly our obligations under those contracts.

Okay. Thanks, guys.

At this time, there are no further questions in queue. I would like to turn the call back over to Mr. Keith Smith for closing remarks.

Thank you for joining us this morning. And we look forward to speaking to you again next quarter. Thank you.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.