Free to Trade (7 page)

I wondered if there were ever any deals Cash sold that were not 'blow-outs'. 'Please go on,' I said.

Cathy began. 'You may be wondering what can be riskier than investing in a casino. You've heard about "the man who broke the bank at Monte Carlo". Why should you finance an operation that can be bankrupted by any lucky punter coming off the street?

'Well, when you are on the side of the house at the gaming tables, then your winnings no longer depend on luck, they depend on reliable percentages. Over the long run, the proportion of total bets placed that is won by the casino is remarkably constant. Different games have different percentages. Slot machines are a high-volume, low-margin business. The biggest profits are made from the high-rollers, the top thousand or so gamblers in the world, who bet, and lose, large amounts of money.

'So the secret to running a very profitable casino is to make sure that, when the high-rollers come to town, they spend as much time in your casino as possible. It is with this in mind that the Tahiti was conceived and built. It will be the most exciting and luxurious hotel and gaming complex in Las Vegas. The hotel has a South Sea theme with palm trees, lagoons and a specially regulated indoor climate that adds to the effect.'

She handed Rob and me a folder with glossy photographs of models of the new casino. The building did look impressive. Its two most distinctive features were a tall white tower, and a large glass atrium filled with trees and water. Rob, I noticed, scarcely looked at the folder, but kept his eyes firmly on Cathy.

'A good location is important to ensure that the casino attracts as many of the casual passers-by as possible,' she went on, handing us maps of Las Vegas. 'The Tahiti is located on the "Strip", between The Sands and Caesar's Palace. These are two of the most popular casinos in Las Vegas, and we expect that many visitors to these locations will want to step into the Tahiti to see what it is like.

'The casino has two thousand five hundred hotel rooms, including twelve luxury Imperial suites which will be made available free to the target list of the biggest high-rollers in the world. There is also parking space for four thousand cars and a one-thousand-seat showroom, where famous entertainers will perform every night. The aim of all this is not to make money, but rather to attract people to the tables.

'The whole complex will cost three hundred million dollars. It is just being completed now and is due to open at the beginning of September. I would like you to look at the financial forecasts I have here.' Cathy passed Rob and me two documents. 'As you can see, the casino's cash flow is expected to be twice as high as its interest costs in the first year. As you look further into the future, you will see that this ratio rises as the casino becomes more profitable.

'The new bonds will have a coupon of 14 per cent and a maturity of ten years. They will be secured with a first mortgage on the casino, so that if it does not make enough money to pay back debt, then you will become owners of a very attractive property.

'Any questions?' The haughtiness in Cathy's voice rose a notch as she threw this out like a challenge.

There was silence for a minute whilst I quickly looked over the numbers in front of me. The deal did look as though it might be interesting, but there was a lot more I would have to find out.

'I have to admit that I don't know very much about the casino business,' I said. 'And there is a lot more research which I will have to do. But I do have a couple of initial questions. Firstly, what happens to these wonderful forecasts if there is a recession?'

'It's well known that the industry does not suffer in a recession,' said Cathy. 'In fact, occupancy rates increased in the recession of the early eighties. The reason is that people actually like to gamble more when times are hard.' She looked at me, daring me to contradict her.

I looked steadily back at her, and didn't say anything for a moment or two. I don't like being patronised, however good-looking the patroniser may be. I wasn't going to let her put me off. 'I can see that may be true,' I said. 'But hasn't much of the development in Las Vegas in recent years been aimed at making it a destination for the family holiday?'

'Yes. In fact, in addition to attracting wealthy gamblers, the Tahiti is expected to be one of the top destinations for families in the next decade.'

'Little junior has got to learn his poker game somewhere,' said Cash with a laugh.

'I see,' I said. 'But isn't the family holiday one of the first things to be cut back in difficult times?'

'Perhaps.'

'In that case, won't there be fewer people coming to Las Vegas in a recession, and won't profits fall sharply?'

There was a short silence as Cathy shuffled the numbers in front of her nervously. 'As you yourself mentioned, you are new to this business. Analysts are unanimous that the effect of a recession on the gaming industry would be negligible. It is well known that during the depression of the 1930s, gambling actually increased.'

She was floundering, but she clearly wasn't going to concede my point, so I let it drop. 'I have a second question. Whenever you are lending money to someone, no matter what business they are in, it is important to know something about them. Who owns the Tahiti?'

Cathy was quick to answer, on surer ground again. 'A man named Irwin Piper. He is a well-known investor on Wall Street. He is generally recognised as a winner, his purchase of Merton Electronics ten years ago was one of the great successes of the eighties; he quadrupled his money in three years. He has also been involved in a number of leisure projects in the past, and he has made money out of them. He is a good man to back, believe me.'

'I see.' I asked another question, 'Doesn't Las Vegas have a reputation for attracting organised crime? How do I know this man is clean?'

'Just because he owns a casino, it doesn't mean he is a crook,' said Cathy sniffily. 'It's true that there were cases of organised crime in Las Vegas in the fifties and sixties, but nowadays the Nevada Gaming Commission runs very strict checks on people before granting them licences to own or manage a casino. If an applicant has ever been involved, or even been suspected of involvement, in any criminal activities at all, then the Commission won't grant a licence. I can assure you Irwin Piper is clean.'

'Nevertheless, I feel uncomfortable lending someone money if I have never met them,' I said.

'Look, if the Nevada Gaming Commission's thorough investigations aren't good enough for you, then you will never be satisfied,' Cathy snapped.

This was getting seriously annoying. After all, I was the customer. And I wasn't going to buy these bonds until I could get completely comfortable with the owner, his casino, and the industry.

Cash sensed this. He had not become Bloomfield Weiss's top salesman by bludgeoning alone. New junk bond issues carry the highest sales commission, and he was prepared to go a long way to try to land a sale, even if there was only a half-chance of success.

'Look, Paul. If we can get satisfactory answers to your questions, will you buy these bonds?'

'Well, I would need to think about it some more. But there is a good chance I would, yes,' I said.

'OK. Let me suggest two things. First, Irwin Piper is passing through London in a couple of weeks' time. I've met him. He's a great guy. I may be able to fix for you to meet him. Have an informal drink. How does that sound?'

'That would be very helpful. Thank you.'

'OK, I'll call you tomorrow to tell you where and when. The other thing I wanted to mention was our annual High Yield Bond Conference. It will be in Phoenix at the beginning of September. There will be an opportunity to visit the Tahiti in Las Vegas at the end of the conference. You will also get a chance to see the management of a number of other companies that issue high yield bonds. Would you like to come? It should be fun. Cathy and I will be going.'

'Well, thank you very much,' I said. 'I will have to check with Hamilton first, but that does sound interesting. I suppose I will get a chance to see the savings and loan Cathy mentioned earlier.'

Cash's blue, piggy eyes looked at me questioningly for a moment. Then he coughed uncomfortably, and looked at his hands clasped in front of him.

'I'm sorry, client confidentiality. I understand,' I said, although I didn't quite understand.

With that, the meeting broke up.

As soon as the lift doors had closed on Cash and Cathy, Rob turned to me. 'Phew! Don't you think she's gorgeous? Can you believe those legs?'

I couldn't argue about the legs. I could argue about the girl.

'She's all yours, Rob. Talk about arrogant. She makes Cash look as sweet as a kitten.'

'You just didn't like her showing you up like that,' said Rob. 'She obviously knows her stuff. Beautiful, and intelligent too. I'm sure she was looking at me all through that meeting. I think I'll give her a ring and see what she's doing tonight.'

'You must be out of your tree. She'll eat you alive,' I said. But I knew it was no use. When it came to women, Rob was definitely out of his tree, and he would probably enjoy being eaten alive.

As we walked back into the office, Hamilton called me over. 'How did it go?' he asked.

'Pretty well,' I said. 'I'll need to do a fair bit more work on it, but I may well get comfortable with the credit in the end.' I told him some of the details of our discussion. 'It certainly will be worth while seeing the owner. Cash also invited me to their high yield conference in Phoenix. He said there would be a number of companies that issue junk bonds present. What do you think?' Hamilton could be tight on expenses and I feared the answer would be no.

But I was wrong. 'You should go. I'd like to begin buying a few junk bonds soon, and it will be a lot easier if you have seen the managements speak. You might learn something from other investors, too. It's always worth gathering information.'

'Fine,' I said. The idea of going to Arizona appealed, although I wasn't sure whether I would be up to prolonged exposure to Cash's geniality and Cathy's lectures.

'Whilst you are over there, you may as well stop off in New York. It's always worth finding out what's going on there.'

'I will. Thank you very much.'

I had been to New York before, but I had never visited any of the investment banks there. Their trading rooms were legendary, the centre of the world financial markets.

I went back to my desk, and opened the Tahiti documentation. I could use some help with this.

'Debbie?'

'Yes?'

'Are you feeling helpful?'

'No.'

'Would you do me an enormous favour?'

'No.'

'See what you think of this.' I tossed her the prospectus for the Tahiti. 'I'll do the numbers, but see what you think of the covenants.'

'Oh great, thanks,' she said, waving at the pile of prospectuses already surrounding her. 'I'll squeeze it into the half-hour between when I go to bed and when I get up.'

For all her complaining, I knew she would do a thorough job. And although she would never admit it, she approached the Tahiti documents with obvious enthusiasm.

'Oh, by the way,' she said, 'did you see the Gypsum of America stock price is up to thirteen dollars. Not bad, eh?'

'Not at all bad,' I smiled.

At least that little investment seemed to be going right.

CHAPTER 4

I was approaching home. The road became wilder as it made its way up the dale where I was born. Gently sloping banks grew into towering hillsides, a tartan of close-cropped grass, bracken and heather. It had rained earlier in the day, but the clouds had disbanded leaving a pale blue sky. The bright green of the grass and the bracken glistened in the sunlight; even the usually dour dry-stone walls shone like streaks of silver along the hillside. This drive up the dale never failed to invigorate me, no matter how long I had been cooped up in the car.

Eventually I came to a T-junction with a sign pointing straight up the hillside, announcing 'Barthwaite 3'. I turned up an impossibly steep road. In five minutes I topped the crest of a hill and looked down into the small valley in which the village of Barthwaite nestled. I drove down past the hard grey stone cottages, brightened up here and there by geraniums or lobelia sprouting from window boxes. I slowed down as I passed a narrow lane which led down to a large farm. The words 'Appletree Farm' were clearly painted on the white gate. It looked just as well kept as it had when I had lived there as a child. A new cattleshed, some modern machinery, but otherwise the same.

I drove on through the village, crossing the small river and up the hill on the other side. I stopped outside the last cottage, where village turned to moorland. I walked through the small front garden, brimming with hollyhocks, lavender, roses, gladioli and a host of colourful flowers whose names I did not know, and rapped the iron knocker of the front door, which was guarded by half a dozen tall foxgloves.

The small, bustling form of my mother was in the doorway in a moment.

'Come in, come in,' she said. 'Sit yourself down. Did you have a good journey? Can I get you a cup of tea? You must be tired.'

I was ushered in to the living room. 'Why don't you sit in Dad's chair,' she said, as she always did. 'It's nice and comfortable.' I sank into the old leather armchair and within a moment I was plied with scones and strawberry jam, both home-made. I commented on the garden and we spent a few minutes chatting about my mother's plans for it. Next came the village gossip, where I caught up on the latest scandalous activities of Mrs Kirby, Barthwaite's answer to Pamella Bordes. Then there was a long story about the problems my sister Linda was having getting the right covering for her settee, and the usual mild nagging that I hadn't dropped in to see her.

My mother didn't keep still for a moment during this conversation. She illustrated every point with elaborate hand movements and every minute or so got up to refill my cup, straighten up something in the room, or rush out to the kitchen to get some more cakes. Her face was slightly flushed as she talked rapidly on. She was a very energetic woman, throwing herself into everything that went on in the village. Everyone liked her. Despite her tendency to be a busybody, most of what she did or said was motivated by kindness or a genuine desire to help. And people still felt sorry for her. Seventeen years is not a long time in a Dales village.