Events
IAGA SUMMIT Macau 2018
gaming industry was considered “unseemly.” But even as many banks overcame their distaste for the industry, lenders continued to face the risk of associating with the “wrong” developer.
Most of our banking clients developed extensive “know your customer” or “KYC” protocols including extensive background checks for their gaming clients decades before KYC protocols became mandatory in the banking industry.
In new or emerging gaming markets, lenders also face the risks involved in lending in an unfamiliar regulatory and legal environment. In order to assess risk, a lender needs to understand what rights it has when a borrower defaults. Because gaming is such a highly regulated environment, in the event of a default by a borrower, the traditional lenders’ remedies of taking control of the asset and selling it to a third party may not be available. In nearly every jurisdiction, the gaming license is not transferrable, which limits the remedies available to a lender. In the United States, Chapter 11 of the Bankruptcy Code provides an alternative that permits the borrower to continue to operate under court supervision for the benefit of the lenders.
However, most other jurisdictions do not have the equivalent of Chapter 11 and offer only liquidation as a remedy for lenders. Some emerging gaming jurisdictions may have never had business insolvencies of the size and scope of a modern casino
resort, and thus, the jurisdiction may lack the precedents that would clarify a lender’s rights.
For instance, we recall needing to visit Macau when it was being developed under the current regulatory regime in order to moderate a meeting with a senior government official in the Macau SAR and the banks, which sought oral assurances that the government would respect certain limited rights of lenders in the event of a default on the loan. Te banks needed to know that if the borrower defaulted, the regulators would cooperate with the lenders to transfer the borrower’s gaming license or issue a new one that would allow the lenders to sell the asset to a new operator who could run the casino. Te law was so new that the lenders’ remedies were unclear. Once a project in a new gaming jurisdiction secures financing, subsequent projects become progressively easier because a precedent has been set. Even in those cases, however, challenges always arise as lenders and borrowers seek new and creative lending products, thus requiring the gaming finance lawyers to be able to adjust the requirements of new products to fit the regulatory framework.
Te “Tree Ds” result in a complex series of risks for a lender in a new or emerging gaming market. As a result, the first project finance loans in that market require a careful bespoke approach to craft a loan product that protects the lenders while fitting neatly with the borrower’s needs, the regulatory framework and the risks involved.
The “Three Ds” result in a
complex series of risks for a lender in a new or emerging gaming market. As a result, the first project finance
loans in that market require a careful bespoke approach to craft a loan product that protects the lenders while fitting neatly with the borrower’s needs, the
regulatory framework and the risks involved.
IAGA
The International Association of Gaming Advisors (IAGA) will hold its 37th annual International Gaming Summit May 14 - 16 at the Four Seasons Macao in Macau, China.
NEWSWIRE / INTERACTIVE /MARKET DATA P83
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