Feb 26, 2009
Executives
Josh Hirsberg – Chief Financial Officer Keith E. Smith – President, Chief Executive Officer Paul J.
Chakmak – Executive Vice President and Chief Operating Officer
Analysts
Lawrence Klatzkin – Jefferies & Co. Felicia Hendrix – Barclays Capital Steven Kent – Goldman Sachs Dennis Forst – Keybanc Capital Markets Joseph Greff – JP Morgan Lee Olive – Citi Kevin Coyne – Goldman Sachs Celeste Brown – Morgan Stanley David Katz – Oppenheimer & Co.
Dennis Farrell – Wachovia Capital Markets Kent Green – Boston American Asset Management
Operator
Ladies and gentlemen, the Boyd Gaming Fourth Quarter Earnings Conference Call will begin shortly. Thank you for your patience and thank you for standing by.
Ladies and gentlemen, and welcome to the Boyd Gaming Fourth Quarter Earnings Conference Call. My name is [Oneika] and I will be your operator for today.
At this time all participants are in listen only mode. We will have a question and answer session toward the end of this conference, but if at any time during the call you need assistance please press star 0 and an operator will be happy to assist you.
As a reminder, this conference call is being recorded for replay purposes. At this time, I would now like to turn the call over to Josh Hirsberg, Chief Financial Officer.
Please proceed.
Josh Hirsberg
Thank you, [Oneika]. Good morning, everyone and welcome to our fourth quarter earnings conference call.
Joining me today on the call are Keith Smith, our President and Chief Executive Officer, and Paul Chakmak, our Executive Vice President and Chief Operating Officer. Our comments today will include statements relating to our future results, including the financial outlook for the coming year and expectations for the first quarter of 2009, 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. Actual results may differ materially from those projected in any forward-looking statement 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.
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 pre-opening expenses. Finally, as a reminder, we are broadcasting this call on our website at boydgaming.com and streetevents.com.
Now, I would like to turn the call over to Keith Smith. Keith?
Keith E. Smith
Thanks, Josh, and good morning everyone. Thank you for joining us on today's call.
Throughout 2008, our results have been impacted by the ongoing recession that has affected the entire country, and our fourth quarter was no exception. Rising unemployment, declining home values, and historic lows for consumer confidence have all combined to create the toughest operating environment our industry has ever faced.
As a result of these factors, we experienced our largest year-over-year declines during the fourth quarter. On previous calls, we've discussed our ongoing efforts to actively and aggressively manage in these difficult times, and in 2008, these efforts resulted in reducing our operating expenses by $125 million.
I'm extremely proud of our management team for what they've accomplished, and I've asked them to continue to look for new, more efficient ways to run our business and grow revenues profitably. I'm confident their efforts will continue to yield positive results.
Looking forward, the trends we are currently experiencing in the first eight weeks of 2009 are similar to what we experienced in the fourth quarter of 2008. And while it's difficult to forecast the future in this environment, we are comfortable with the trends we are currently seeing.
With respect to our Echelon development, we really have nothing new to report on this call. As we said last time, we will take the remainder of 2009 to develop and consider a full range of options for this project and to properly evaluate them against the backdrop of the conditions in the credit markets in the broader economy.
As we said before, having a significant presence on the Las Vegas strip is still an important element of our long-term strategic plan, and we continue to view the 87 acres on the Las Vegas strip as a major long-term strategic asset. We will update you further when we have a more definitive strategy on how and when we will move forward.
Moving to our recent news, related to Station's Casinos, we wanted to touch briefly on our announcement from earlier this week. As you all know, we sent a letter to Station's Casinos earlier this week indicating our potential interest in acquiring all or a portion of Station's assets.
Our proposal is to acquire certain assets of Station's for $950 million in cash. Under the particular scenario outlined in our letter, the related assets include four of Station's major casinos in Las Vegas, Texas Station, Santé Fe, Fiesta Rancho, and Fiesta Henderson, their interest in Green Valley Ranch, and the Aliante Station, numerous smaller operations owned by Station around the Las Vegas Valley, and certain land holdings and other assets.
The initial proposal does not cover the remaining assets. However, we are not ruling out making a formal offer for these assets should the conversation move in that direction.
Given our long history and experience in the Las Vegas market, our long-term strategy to expand our presence in this community, these assets appear to be an ideal fit for our company. We anticipate financing this transaction with our existing bank credit facility, which has approximately $2 billion in availability.
While we're excited about the potential of this transaction, there's still a tremendous amount of due diligence that has to happen before we can move forward. Certain factors and assumptions may change our views positively or negatively.
As a result, it is simply too early in the process to provide any more information at this time. We will provide further updates as warranted.
In closing, I want to reinforce something we spoke about briefly on our last call. We are confident that we have positioned our company to endure these difficult economic times, but merely surviving is not good enough.
History teaches us that moments of great challenge also provide great opportunities. That will undoubtedly prove true in the months and years ahead.
The steps we have taken to build a strong and well capitalized company will allow us to pursue opportunities that may arise. We intend to make the most of those opportunities that make sense for our company and our shareholders.
We have access to capital, strong balance sheet, a well diversified business model, and a skilled and experienced management team. All of these elements are essential to the short term and long term viability of our company.
So although we are dealing with tremendous challenges today, we remain as confident as ever in the future of Boyd Gaming. Thank you for your time this morning and now I'd like to turn the call over to Paul Chakmak.
Paul?
Paul J. Chakmak
Thanks Keith, hello everybody. Like all consumer driven businesses we're feeling the impact of the recession, particularly in Las Vegas and Atlantic City.
Customers have clearly become more selective with their discretionary spending, so we believe it is vital that we continue to offer a more compelling product than ever. We did just that over the past year, completing projects that elevated our product offerings.
Our properties can now reap the benefits of these efforts in 2009. The end of January, we introduced a new destination hotel and spa at Blue Chip.
This property has gone through a difficult period, but we believe this expansion has taken Blue Chip to another level, creating a true regional resort destination. We think it will help us recapture market share, and just as importantly, expand Blue Chip's geographic reach drawing customers for more distant markets than ever before.
Throughout the Las Vegas Locals region, we under took a campaign to refresh our restaurant offerings and bring in nationally recognized brands. In doing so, we gave our customers new reasons to choose a Boyd Gaming property in a competitive market, and we did so at a very modest cost.
But improving our product doesn't necessarily require the investment of millions of dollars. Take our B Connected Player Loyalty Program.
Several weeks ago, we officially launched B-Connected Online, a one stop shop on the internet for our player's club members. Our philosophy is built on providing exceptional customer experiences.
Our goal with B-Connected Online was to develop cutting edge tools that make it easier than ever for customers to enjoy the benefits of B-Connected membership, while promoting the benefits of visiting our other properties. Our goal is not just to get by.
We're actively working to improve our long-term business model, making fundamental adjustments that will keep us competitive for years to come. And now I'd like to give you a quick run down on what we saw in each of our regions during the fourth quarter.
As we noted in our press release, the Las Vegas locals market remains challenging. Although the recession has been underway for more than a year, the downturn did not reach its current level of severity until the second half of 2008.
So our comps for the fourth quarter were difficult, and they will remain difficult for the first half of 2009. There's no question that the Las Vegas locals market was hit hard in the fourth quarter.
Unemployment continues to rise in the Las Vegas Valley, passing 9% in December. That is having a severe impact on discretionary spending throughout the community.
The situation is made worse by continued declines in the Las Vegas residential real estate market, further impacting consumer confidence. We're also feeling the effects of continued weakness in hotel room rates throughout the city.
Resorts on the strip have drastically cut room rates, forcing off-strip properties to respond in kind. We operate more than 5,000 hotel rooms in Las Vegas, so this dynamic has had a significant impact on our bottom line.
We estimate that lower cash ADRs cost us more than $5 million in the quarter. In addition, erosion in business of non rated players continued, adding to the effects of lower hotel room rates.
We believe this impact on room rates and non rated play will be the same magnitude during the first quarter. The news is better in downtown Las Vegas, considering the circumstances.
Reduced air capacity from Hawaii has effected visitation, but improvements in our charter operations are helping to offset the impact to our bottom line. In general, our downtown Las Vegas properties are well suited to function in this value-oriented marketplace.
The scale of the operations gives us the flexibility to remain profitable at lower price points and we continue to see strong levels of interest from our regular patrons, even if these financially difficult times. Results from the Midwest and South remain mixed, but there are several reasons to be optimistic about this region.
As you know, Blue Chip has lost a significant amount of business to its nearby competitor over the last year and a half and this has had a sizeable impact on results for the region. But on January 22nd, we took a big step in responding to this competition when we opened our new Blue Chip Casino Hotel and Spa.
With the addition of 300 upscale rooms and suites, we now have nearly 500 rooms available to our guests. Our expanded room offerings will allow us to bring in more customers from more distant markets and allow us to begin marketing Blue Chip as a regional getaway, instead of just a day trip destination.
Our expansion included 20,000 square feet of entertainment and meeting space, as well as two Las Vegas inspired restaurants that will give guests yet another reason to visit Blue Chip. We also introduced Spa Blu, our new 10,000 square foot spa and fitness center.
Spas have been a key element of success, of successful resort destinations for some time now and we’re pleased to become the first casino in the greater Chicago area to offer this amenity to our guests. It’s still early, but we’re encouraged by the initial results from Blue Chip.
Both admissions and gaming revenues have exceeded prior year levels since the opening of the expansion. Although this expansion is boosting our revenues, we expect margins of Blue Chip will be lower than normal during the first quarter, as is typical for any large project going through a ramp-up phase.
We will actively adjust and refine the business over the coming months. We remain confident that the new Blue will help us to become one of the leading destinations in the region.
How quickly that happens, will depend largely on how fast we can cycle through the current downturn. The other bright spot during the quarter was our Louisiana properties.
We were especially pleased with Delta Downs, which posted a record performance in 2008. I’m pleased to report that record business continued into January at Delta.
Strength of our Louisiana operations help offset weakness elsewhere in the region and shows the value of our geographic diversity. In Atlantic City, the competitive landscape continues to adversely impact business.
Borgata is facing strong regional and local competition, making it more difficult to mitigate the effects of the recession. The two-week smoking ban also impacted results.
We noticed a significant drop in business while it was in place and we believe it will continue to have a smaller impact after its repeal due to customer confusion over whether it was still in place. On the bright side, Borgata was the only casino in the market to show a positive slot win growth for the year.
As with our other operations across the country, we remain focused on maximizing operational efficiencies without compromising the high quality of customer service that has become synonymous with the Borgata brand. In the end, there is no denying that the economy has had a significant impact on business.
However, we are continually adjusting to these adverse conditions and we remain confident that we will successfully manage the tough times while positioning ourselves for an even stronger future. At this point, I would like to turn the call over to Josh to update you on the financials.
Josh Hirsberg
And I will open my comments with a few balance sheet related items. Our year-end debt balance was $2.6 billion, of which approximately $2 billion was outstanding under our revolving credit facility.
This leaves us with available borrowing capacity of approximately $2 billion. We were in compliance with our covenants at year-end and expect to remain in compliance.
Our year-end leverage was 5.65 times versus a covenant of six times. Our covenant increases to 6.5 times in the first quarter and remains at that level for the rest of 2009.
As a result, we have increased flexibility under our credit facility to capitalize on opportunities as they may present themselves. As we discussed on our third quarter conference call, during the fourth quarter, we purchased approximately $100 million of our debt at a substantial discount.
The vast majority of those purchases were in October, when the prices on all three bond issues created a unique buying opportunity. We have not purchased much since then and would only consider additional purchases if market conditions create a favorable opportunity.
Before I discuss items related to 2009, I want to touch on the impairment charges we disclosed in the fourth quarter earnings release and update you on Dania Jai Alai. The impairment charges were principally related to goodwill and intangible assets associated with the acquisitions of Coast, Shreveport, and Blue Chip.
We also recorded charges related to the real estate we own at Dania and in North Las Vegas. The total of these charges was $290 million.
The charges are non-cash in nature and have no adverse effects on our covenants or the strength of our capital structure. In terms of Dania Jai Alai, you may recall we agreed to acquire Dania for $150 million in 2007; $75 million at that time and a second payment of $75 million, contingent on certain events occurring in the future.
Based on the potential likely resolution of the contingency, we negotiated a new arrangement regarding the $75 million second payment, which allows us to make three principal payments of $9.4 million in January, April and July of this year and a final principal payment of $47 million in January 2010. In addition to these principal payments, we owed approximately $9 million for interest accrued through December 31, 2008.
This amount will be reported in the first quarter interest expense line item but we will back it out over the first quarter adjusted earnings per share number. We will also incur incremental interest expense of $4.3 million until the final payment is made in January 2010.
As we mentioned on our last conference call, we have suspended EPS and EBITDA guidance due to the limited visibility in our business. However, I do want to provide some details on other items that may help you model our business.
We expect corporate expense to be $38 to $43 million for this year, pretty much spread evenly throughout the year. We estimate annual interest expense to be approximately $150 to $160 million, excluding the $9 million of interest related to Dania that we will back out of adjusted EPS.
We have stopped capitalizing interest on Echelon as of year-end. Both appreciation expense and share based compensation expense should be similar to levels we reported in 2008.
Remember, share based compensation expense is excluded from our adjusted EBITDA but it is included in our adjusted EPS number. In terms of capital expenditures for 2009, we estimate $50 to $60 million for maintenance capital spread evenly throughout the year.
In addition, we have approximately $15 million remaining on Blue Chip, most of which will be paid in the first quarter. For 2009, Echelon’s continued spend is a result of spreading payments over time as opposed to incurring them all in 2008.
We expect to spend approximately $90 million in 2009 related to Echelon. Our spending on Echelon through the end of 2008 totaled approximately $600 million.
In addition to our investment at Echelon, we expect recurring annual expenses to be between $15 and $20 million per year. This amount will be reflected in the pre-opening expense line item.
Examples of these expenses include security, warehousing, insurance, payroll and property taxes. Finally, distributions to us from Borgata in 2009 are expected to be approximately $19 million.
Before I ask [Oneika] to open the call for questions, I want to remind everyone that we will not be answering any questions regarding the 8-K we filed on Monday that expressed our indication of interest in Station Casino assets. We’d appreciate it if you will refer from asking questions on that topic.
[Oneika] at this time, we are ready for questions.
Operator
(Operator instructions) Your first question comes from the line of Larry Klatzkin – Jefferies.
Lawrence Klatzkin – Jefferies & Co.
A couple questions here. One, Lake Charles was up 27% in January and kind of a real jump there; can you just talk about what you’re seeing going forward in that market?
Paul J. Chakmak
Well, Larry, as I mentioned, Delta had a record '08, it operates in that Lake Charles market, had a record January. And it’s a bit of a micro-economic environment, I think relative to the overall country, there is still rebuilding from the hurricanes during last year.
Obviously, there – because of where oil prices went there has been a significant amount of exploration that is obviously been muted given the significant decline in oil prices to date, but none the less that market in Louisiana generally is the healthiest market I think we see in the United States today.
Lawrence Klatzkin – Jefferies & Co.
All right. And Blue Chip since your opening, what kind of market share you have gained up to at this point?
Paul J. Chakmak
Don’t have a market share number for you, Larry. You’ll start to see those obviously when we get into February results, though the Native American tribe in Michigan needs to be considered in that and obviously their numbers are not made public at all.
But as I mentioned, being able to show improvements in both revenues and admissions at the property since the opening over the prior year is a big, big step in the right direction and we are very pleased with the comments we’ve gained from customers and believe Blue Chip is a very significant force in that market now today.
Lawrence Klatzkin – Jefferies & Co.
I mean long term, and not short-term, but long-term like 2010 or whatever, what would you be happy with as a cash flow out of that property? What kind of recovery back from the former levels?
Paul J. Chakmak
Well I mean Larry; we’ve spent $130 million on that project. We certainly expect good returns in a normal economic environment on that type of investment so you can certainly do the math and understand where our expectations would be as far as incremental EBITDA performance improvement.
Lawrence Klatzkin – Jefferies & Co.
All right, well thanks guys.
Operator
Your next question comes from the line of Felicia Hendrix – Barclays Capital.
Felicia Hendrix – Barclays Capital
Your discussion of the performance in the Las Vegas locals market over the first eight weeks of the year kind of implies the magnitude of the margin deterioration that we saw in the fourth quarter could continue. Am I interpreting that correctly?
Paul J. Chakmak
Yes, I think what we said and I think Keith made the comment and I maybe reinforced it Felicia, was that we are seeing stability in that market relative to the performance we reported in the fourth quarter continuing into the first two months of 2009.
Felicia Hendrix – Barclays Capital
Okay, and then you did mention the competition that is coming from the lower ADRs on the strip, but the strip is also offering discounts to the locals in various entertainment areas. Wondering if that’s competitively affecting your properties?
Paul J. Chakmak
No question about it. The strip properties are competing with us for the local customer obviously to some extent.
It's new opportunities, new value oriented opportunities for folks that live here and that has an impact and to some extent, you have seen some of that impact in the fourth quarter and will continue to see it as they look to grow into a market that they typically haven’t really focused on.
Felicia Hendrix – Barclays Capital
Right. I also seem to ask this question every quarter and I won’t break a trend, but in Atlantic City your margins have been declining for a variety of reasons over the years and I know we are in a tough economic environment; it’s a really challenging competitive environment.
Your property certainly holds it’s own in that market, but I think you would probably admit that the margins could be better. What are you doing to mitigate some of the pressures that you are seeing there?
Keith E. Smith
I agree. I think Borgata is certainly the best positioned property in the Atlantic City market and we’ve worked hard to accomplish that and certainly we invested in that property so that it can accomplish what it accomplishes.
But, having said that, we made some significant adjustments back in the first of November to begin to right size that operation and work on the margins. Clearly in the fourth quarter you did not see that take hold.
You will begin to see those efficiencies and those adjustments take hold in the first quarter. Outside of that we believe we are running a good property very efficiently and will continue to look for profitable areas of revenue.
I believe that there are some that we continue to look at and we will continue to look for ways to refine the business, but a lot of the changes that were made late in the year once again just haven’t been reflected in the fourth quarter numbers. So, we should see some improvements in the margins in the first quarter.
Felicia Hendrix – Barclays Capital
Okay, I’ll look forward to seeing that. Thanks a lot.
Operator
Your next question comes from the line of Steve Kent – Goldman Sachs.
Steven Kent – Goldman Sachs
Hi. Could you just talk a little bit more about the local Las Vegas market, especially what you are seeing from your competitors?
Keith, you said that in every environment there is an opportunity to find and gain some share and I guess it seems to me like – are you hearing from the customers that they’re concerned about Station's financial issues and does that actually affect the way they operate? Are you seeing them doing things more aggressively or less aggressively and what is that create in opportunity for you from an operational perspective, not from the 8-K filing?
Keith E. Smith
I think from a market perspective and a competitive perspective it has been a very competitive market all year. It’s probably gotten maybe a little more competitive in the second half of the year.
I don’t think there’s been any change in the customer’s behavior that we’ve noticed or certainly in our behavior or our competitor’s behavior because of financial conditions that may exist within individual companies. As we talk to the customer we’re not hearing anything specific and once again we’re not observing any differences really in how competitors are reacting or how they’re marketing.
I think we are all fighting for a
Steven Kent – Goldman Sachs
And then just January, February, how are those trends coming along? Any stabilization yet in the local Vegas market?
I mean as you pointed out high unemployment rate, real estate being a problem, at some point it starts to bottom out but are you seeing any changes or anything in January or February so far?
Keith E. Smith
Sure, I think as Paul indicated a few moments ago in response to a similar question that we, the trends we are seeing in the first part of January and February are similar to what we saw in the fourth quarter so it looks like things are stabilizing. We still have some rising employment here and increased competition from the strip, but we also have efficiencies that are being built into the business that aren’t fully reflected in the fourth quarter so we believe we are seeing stabilized trends in the first eight weeks.
Now, it’s a limited snapshot. It's eight weeks of the year so just keep that in mind.
Steven Kent – Goldman Sachs
Okay, thanks.
Operator
Your next question comes from the line of Dennis Forst – Keybanc.
Dennis Forst – Keybanc Capital Markets
I had a number of different types of questions. Let me just start with Borgata.
Josh, you said that the distribution this year will be about $19 million. Is that what it was last year?
There was no distribution in the fourth quarter?
Josh Hirsberg
It was larger last year. There were no distributions.
I’m not sure I understand fully your question Dennis. There were no distributions in the fourth quarter for Borgata from 2008, that’s correct.
Am I answering your question?
Dennis Forst – Keybanc Capital Markets
Oh, okay. I thought the nine months was about $19.5 million.
Josh Hirsberg
For 2008, that’s correct.
Dennis Forst – Keybanc Capital Markets
Okay and you said 2009 it will also be about $19 million?
Josh Hirsberg
Yes.
Dennis Forst – Keybanc Capital Markets
Okay. And then I noticed the debt in Borgata went up in the fourth quarter.
What was that about?
Josh Hirsberg
The debt balance at the year end was about $740 million.
Dennis Forst – Keybanc Capital Markets
Right, I think it was around 700 in September, 702.
Josh Hirsberg
It just had to do with the timing of construction payables related to the Water Club and just spreading out those payments, that’s all. We would expect the debt to come down over time, largely because Borgata and the Water Club are generating a significant amount of free cash flow throughout 2009.
Dennis Forst – Keybanc Capital Markets
And there’s not much in CapEx going forward at Borgata, is that correct?
Josh Hirsberg
Yes, that’s correct so it’s a real opportunity for the property to delever over time. I think the 740 is probably just not representative of kind of where it’ll be.
Dennis Forst – Keybanc Capital Markets
Why would you rather deleverage rather than pay it all out to yourselves and to MGM?
Josh Hirsberg
Well, we are limited to tax distributions by our credit facility based on the current leverage at the property and we don’t forecast getting to a point where we could actually pay out incremental distributions.
Dennis Forst – Keybanc Capital Markets
Okay, so the $19 million is basically tax related?
Josh Hirsberg
Exactly.
Dennis Forst – Keybanc Capital Markets
Okay, then if I can move on to Louisiana and get a clarification on those properties. You mentioned how well Delta Downs is doing, but Shreveport had a terrific January and even Treasure Chest had a relatively good January.
Are those trends continuing also? You said that Delta Downs continues, what about the other two properties
Paul J. Chakmak
Hey Dennis it’s Paul I think my comment on Louisiana overall was it is clearly the strongest market in the United States that we operate in today and we continue to see favorable trends in the state of Louisiana in the early part of 2009. I think as you point out, those were certainly reported when the January numbers came out.
Dennis Forst – Keybanc Capital Markets
Okay. Then in the locals market had a couple questions, you mentioned that you were upgrading the restaurant in the locals market using some national brands what does that mean?
Paul J. Chakmak
Well I think that we talked about it over the last couple of calls and all those products are now fully deployed and working well. If you go to really any of the four major properties, Orleans; Gold Coast, Sam's Town or the Suncoast see a pretty significant change in food product offering.
TGI Fridays has a major presence at all four properties now. Prior it was only at the Orleans, if you have some quick service offerings from Fuddruckers, Sbarro's, Baskin Robbins, and then some higher end offerings both steak and Italian, the Steak our own restaurant, the Italian a very well known local restaurant.
Dennis Forst – Keybanc Capital Markets
So these are leased brands?
Paul J. Chakmak
All except for the high end steak offering. Yes.
Dennis Forst – Keybanc Capital Markets
That you owned, okay. Good and then on a comment that Keith made about Stations.
I won’t ask a new question, but when he commented that his – your bid was for the four majors, the joint ventures, smaller properties, land in Vegas, and he did not mention any of the Indian management contracts. So I’m assuming that the $950 million bid did not include Thunder Valley or any of the other Indian reservations – opportunities?
Josh Hirsberg
Yes. Our assumption is that it does include Thunder Valley, but to be fair Dennis, we have and as we’ve stated many times before we have very limited information.
So that’s why it’s very difficult for us to answer any questions right now until we have the opportunity to do further due diligence and get a lot of the questions answered that you want to know as well as we want to know.
Dennis Forst – Keybanc Capital Markets
Yes okay Josh and actually you answered my question. Great.
The last thing is M Resort opens on Sunday, it’s probably not going to impact any of your properties but it could impact some others. Can you comment Paul, on what you see happening in the locals market with the opening of M Resort?
Josh Hirsberg
Yes I think the geographic location of M specifically won’t impact us directly, though there tends to be a bit of a kind of wave or trickle down affect as new operations opened up. We didn’t really see that with Aliante, but Aliante is very far to the north of anything we own.
M will certainly, with additional rooms in the market, that obviously doesn’t need rooms today, additional gaming capacity have an impact on operations to the south of town and in turn, there could be some impact that moves forward. But as a standalone property it just, it doesn’t have the linkage that us and others do on a multi property basis and so I’m sure they’ll just work though that.
Operator
Your next question comes from the line of Joseph Greff – JP Morgan.
Joseph Greff – JP Morgan
Question on Borgata, should we assume a continued elevated promotional allowance level until sometime after Sands Beth Works opens up? And then I have a few easy model questions for Josh.
Keith E. Smith
The promotional environment there continues to be very aggressive as the Pennsylvania Casinos continue to promote and as they continue to attract business, so I think you’ll continue to see an elevated promotional environment in Atlantic City.
Joseph Greff – JP Morgan
Does it get worse from where it currently is in January and February do you think?
Keith E. Smith
No I would not anticipate it gets worst, but it will stay elevated.
Joseph Greff – JP Morgan
And then Josh, I was hoping you can help us out with the tax rate for the year, what maintenance capital expenditures are for Borgata for ’09. And then just looking at your interest expense range of 150 to 160, which you said excludes that $9 million interest accrual level.
That seems high to me, can you just maybe help me understand that a little bit and maybe what some of your LIBOR assumptions are?
Josh Hirsberg
Sure Joe. I’ll leave out one of your questions just remind me what one I left out is.
On the tax rate to be – we normally would have it calculated, at this time we just haven’t finished all the work yet and so I think we’ll have to update you probably on the next call when we’ve completed all that work. We’re just running a little bit behind this time around to be able to give you an estimate for 2009.
What I’d tell you is we would expect it to run higher than what we’ve seen historically, largely because of kind of expected lower earnings, pre-tax earnings. In terms of maintenance CapEx at Borgata, I think that number runs about $20 to 22 million.
And then your other question regarding interest expense the 150 to 160 number, don’t forget that doesn’t include any capitalized interest so it makes it a little bit of an inconsistency to look at it versus the prior year numbers. But basically what we’ve done is kind of forecast interest expense in terms of LIBOR is we just looked at the forward curve for the next year or so and used that rate and applied our margin that we borrow at under our credit facility, which is a favorable 1 5/8%.
So hopefully that helps you.
Operator
Your next question comes from the line of [Arlie Bazita] – Citi.
Lee Olive – Citi
It’s actually Lee Olive from Citi. Most of my questions have been answered just one or two more.
I guess Josh, can you remind us the covenant at Borgata, where it ended the year and what your limitations are there and my second question was I guess you mentioned you bought back 100 million bonds most of that in October. I think, I would assume that those were centered in the 2012 notes if you bought anything outside of that I’d like to know as well, thanks.
Josh Hirsberg
Sure. The covenant for Borgata you broke up a little bit off Lee, so I’m assuming you asked for the what the ratio was at the end of the year for Borgata, it was at 3 and 3.72 I believe is the current estimate of the covenant ratio.
Lee Olive – Citi
And what’s the limit?
Josh Hirsberg
The limit is 4.25 and it ramps up to five and then starts to come back down. It’ a step up and then comes back down over time.
But it’s currently 4.25 it goes up to 4.75 and then five for a couple of quarters and then starts to come back down again. So it has plenty of room there.
In terms of the bond repurchases, we largely focused on the 7.75 we did purchase about 50 million of the 6.75, but as I mentioned in my remarks we’ve not really purchased anything since October.
Lee Olive – Citi
What is the average price you paid for the 6.75?
Josh Hirsberg
I don’t have that information in front of me at this point. But you can look back at prices around October and those were the prices we were paying literally those purchases were made in the first 10 business days of October.
Operator
Your next question comes from line of Kevin Coyne – Goldman Sachs.
Kevin Coyne – Goldman Sachs
Thank you for taking my call. I was just wondering if you could give us a sense as to some occupancy levels, whether it just be down town or in the Las Vegas local segment as well.
Paul J. Chakmak
Well I mean I think occupancy levels that we’re experiencing are certainly similar I’m sure to others across town. Down roughly 5% to prior years so instead of seeing occupancies in the low to mid 90s you’re seeing occupancy in the high 80s.
Kevin Coyne – Goldman Sachs
Okay and so is the – can you give us a sense as to where your room rates are now?
Paul J. Chakmak
There are lots of different ways to get room rates so a lot of the analysts pull room rates. I mentioned on the call that just in the fourth quarter alone cash room rates effectively ADR had a $5 million impact on our business, on a comparable basis to the prior year's fourth quarter and we expected those trends to continue based on what’s in the market.
Kevin Coyne – Goldman Sachs
Okay. And then can you give us a sense as to how the – any benefits from the new New York train to Atlantic City?
Keith E. Smith
This is Keith. It’s really too early.
It’s only been running for several weeks there’s not been a huge advertising launch and we expect that it will just take a little bit of time to gain ahead of steam so to speak, but we don’t have anything to report.
Operator
Your next question comes from the line of Celeste Brown – Morgan Stanley.
Celeste Brown – Morgan Stanley
A few questions. First, Josh or Paul, can you give us a sense of the impact of the lower fuel prices on your down town segment, in terms of the margin in the quarter.
Paul J. Chakmak
Obviously lower fuel prices helped that business basically for the fourth quarter have margins that were flat on a year-over-year basis, just down a couple of tenths. That was a big positive, but it is hard to isolate it just to fuel Celeste, because pricing over all for our packages was also a factor in that.
At the end of the day we look at the operation of Vacations Hawaii, which is our travel agency in Hawaii that runs those charters as part of the over all marketing costs of that business. And so though obviously down town was impacted from a walk in or a drive in type perspective, just like anybody else in Los Vegas.
We were able to benefit by what is effectively lower marketing costs through the Vacations Hawaii business, so tough to isolate just to fuel prices, though clearly it was a big benefit just like we have seen impacts as we have seen fuel price spikes.
Celeste Brown – Morgan Stanley
There has been some press about Indiana potentially creating some tax relief. Can you comment on the likely hood of that happening?
I think that would be a first in the gaming industry.
Keith E. Smith
We look at legislation occurring all across the country and I think one of the things we have learned over our years operating in various states around the country is you can’t count on anything until the end of the session. There is a lot of things that will occur.
We are certainly optimistic or I should say we are pleased by the fact that the legislation has even been introduced to reduce taxes and we are hopeful for a positive outcome, but where it goes is anybody’s guess. So we are certainly not counting on it but we are hopeful and we will see what happens.
Celeste Brown – Morgan Stanley
And that would help you both in your gaming tax line and then in your income tax line right, because of the non-deductibility of taxes, if it were to happen?
Keith E. Smith
I believe that is correct. If the legislation and I haven’t looked at it in detail, if the legislation were to pass as it is currently drafted, that is true.
Celeste Brown – Morgan Stanley
And then finally for you Paul, you guys sound a lot more optimistic than a quarter ago. Can you tell us where you stand in terms of cost cutting and you have talked about efficiencies in the Borgata, but in terms of the rest of your segments, is there any place you are particularly focused right now?
Paul J. Chakmak
No I mean, as Keith pointed out we took a lot of operating expense out of the business over the course of 2008. We will continue to see those benefits.
We feel very good about where the company is positioned relative to any sort of economic recovery. We are operating very, very efficiently but will always continue to adjust.
Never sit still, but there is not a specific area focus other than obviously at Blue Chip, we will just look to become more efficient as we have a much bigger place and will gain efficiencies by people just becoming more and more familiar with the operation of a much larger facility.
Operator
Your next question comes from the line of David Katz – Oppenheimer & Co.
David Katz – Oppenheimer & Co.
I wanted to just follow up one of the earlier questions about Atlantic City. And noticing that there is a little bit in the January numbers from market share shifting, and I think Keith, you made the comment about elevated promotional levels.
Was there some noticeable change out there in January with respect to some of your competitors that may or may not be strained in that market and pulling back on some of their promotional efforts? What might be behind some of the market share shifts in January?
Keith E. Smith
I don‘t have any specific response or I wouldn't have a specific answer for you to talk about the specific marketing plans at one of the properties in Atlantic City and whether it was more aggressive or less aggressive than the previous couple of months. In general, the promotional environment is elevated and has been at an elevated level for a while, and we expect it to stay there.
Once again, not in a position to comment on specific programs at specific properties.
Operator
Your nest question comes from the line of Dennis Farrell – Wachovia Securities.
Dennis Farrell – Wachovia Capital Markets
I guess my big question here is more in focus than acquisitions. I know you can’t comment about the 8-K that you filed, but you did mention about the companies need to have a presence on the strip, and I just wanted to – maybe if you could rank for the United States what would be most interesting for the company to use your liquidity, such as all the distress assets for sale, from like one to three meaning locals, strip, and potentially regional?
Keith E. Smith
If you look back over the history of our company, we have grown it very prudently, very carefully, made very smart acquisitions, and smart investments. We are certainly at a point in time in our industry where there are some opportunities out there to make investments.
They obviously have to be good investments and we are keeping our eyes open. I wouldn’t be in a position to kind of rank the markets.
We obviously, through our letter that we sent earlier in the week, believe that there is a good opportunity here in the Las Vegas locals market, which has been part of our strategic plan to grow our presence there. Part of our strategic plan is to grow our presence on the strip.
We think that in the long-term that is some place we want to be and it is still an element of our long-term strategic plan. When and how that happens, as I think I said in my comments, we are still studying but we have 87 acres on the strip that is and will be very valuable.
We just don’t know when at this point we are going to go forward and as we look at some of the regional markets, the river boat markets in the Midwest and the south, if there were opportunities we would look at them. They would have to be the right opportunities and today we just haven’t found those.
Operator
Your next question comes from the line of Dennis Forst – Keybanc.
Dennis Forst – Keybanc Capital Markets
I had a couple of thoughts for Josh, if you don’t mind. Josh, the corporate expense number that you gave us $38 million to $43 million, does that include or exclude the stock comp portion that is tied to corporate?
Josh Hirsberg
It excludes.
Dennis Forst – Keybanc Capital Markets
It excludes that. And then there was a line item in your reconciliation for the adjusted EPS of something called a one-time tax adjustment.
What was that? It goes around $3.7 million.
Josh Hirsberg
That was related to a higher state tax rate that occurred because of some valuation adjustments independent of the impairment charges, but it resulted in a higher effective tax rate for us.
Dennis Forst – Keybanc Capital Markets
And as it is called one-time, we are not going to be seeing that again?
Josh Hirsberg
That means it only happened once.
Dennis Forst – Keybanc Capital Markets
Is that what that means? And then lastly on interest expense, the net number in the quarter, that $25.3 obviously that excluded – or it included the $12.2 from capitalized interest.
Did it include any other adjustments from the swaps or derivative chain interest – instrument changes or anything else?
Josh Hirsberg
Yes, but those are immaterial relative to the capitalized interest.
Dennis Forst – Keybanc Capital Markets
Okay, immaterial meaning less than a million each?
Josh Hirsberg
Yes, I would guess.
Dennis Forst – Keybanc Capital Markets
Half a million each?
Josh Hirsberg
Pretty small.
Operator
You nest question is a follow up from the line of Lawrence Klatzkin – Jefferies & Co.
Lawrence Klatzkin – Jefferies & Co.
Well Robin got my one question. The other one I have is just with the Blue Chip not opening until mid-January; did you have a capitalized interest in the first quarter?
Josh Hirsberg
No, just a really small amount. It shouldn’t be material at all.
Let me just look at our model real quick. I don’t even thing we have any capitalized interest in the number right now, so that is how small it is.
We would stop capitalizing Larry, upon the opening January 22nd, so it would be 22 days of capitalized interest. Not a big number overall.
Operator
Your next question comes from the line of Kent Green – Boston American Asset Management.
Kent Green – Boston American Asset Management
Yes, my question pertains Josh, to your tracking program on your loyalty cards, are you going to get any data back from that and is it completely through all of the casinos, including Borgata?
Paul J. Chakmak
I guess I’ll take that Josh. I mean as far as tracking player activity, all of our properties except for Borgata, Borgata has its own database and operates independently given its joint venture ownership structure.
But certainly all of the other major Boyd Gaming properties, whether it’s here in Nevada or the Midwest and south, all operate and effectively are able to share data base and player activity and we would certainly cross promote properties very, very actively now. So I think, does that answer your question?
Kent Green – Boston American Asset Management
Yes. But you don’t have a Las Vegas property but you do have the Orleans I guess, which you could put people in at Vegas and Atlantic City, so I don’t know if you’re getting any step up in AC indirectly or directly or whether you're getting anything for Orleans because of the regional tracking.
Paul J. Chakmak
Visitation from the regional markets is typically inbound to Las Vegas, there isn’t in all honestly a whole lot of demand inbound to Atlantic city and most folks want to come to the capital which is Las Vegas and the Orleans is very actively used, certainly as well as the others, but Orleans given its size and scale really on par with many of the properties on the strip, as far as amenities, is the primary destitution point for those customers, and that business has elevated itself since the launch B-Connected.
Operator
At this time there is no additional questions. I would now like to turn the call back over to Josh Hirsberg for closing remarks.
Josh Hirsberg
Thank you, [Oneika]. Thank you for joining the call today and if you have any further questions please feel free to reach out to the company.
Thank you.
Operator
Ladies and gentleman, this concludes the presentation. You may now disconnect.
Thank you and have a good day.