Marina District Finance Company, Inc. - FORM 10-Q

Marina District Finance Company, Inc. - FORM 10-Q - November 13, 2014

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Attached files

Marina District Finance Company, Inc. Reports

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EXCEL - IDEA: XBRL DOCUMENT - Marina District Finance Company, Inc.	Financial_Report.xls
EX-32.1 - SOX 906 CERTIFICATION - CEO - Marina District Finance Company, Inc.	mdfc10q93014ex321.htm
EX-31.1 - SOX 302 CERTIFICATION - CEO - Marina District Finance Company, Inc.	mdfc10q93014ex311.htm
EX-31.2 - SOX 302 CERTIFICATION - CFO - Marina District Finance Company, Inc.	mdfc10q93014ex312.htm
EX-32.2 - SOX 906 CERTIFICATION - CFO - Marina District Finance Company, Inc.	mdfc10q93014ex322.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________________________________

FORM 10-Q

___________________________________________________

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 333-173275

____________________________________________________

Marina District Finance Company, Inc.

(Exact name of registrant as specified in its charter)

____________________________________________________



New Jersey		22-3767829
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Borgata Way, Atlantic City, New Jersey 08401

(Address of principal executive offices) (Zip Code)

(609) 317-1000

(Registrant’s telephone number, including area code)

_______________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

All of the common equity interests of Marina District Finance Company, Inc. are held by Marina District Development Company, LLC. All of the common equity interests of Marina District Development Company, LLC are held by Marina District Development Holding Company, LLC.

EXPLANATORY NOTE

The registrant has filed all reports that would have been required to be filed by the Securities Exchange Act of 1934, as amended, if the registrant was subject to such requirements.

MARINA DISTRICT DEVELOPMENT COMPANY, LLC

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2014

TABLE OF CONTENTS



		Page No.
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013	4
	Condensed Consolidated Statement of Changes in Member Equity for the nine months ended September 30, 2014	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27
Item 4.	Controls and Procedures	28

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 6.	Exhibits	46
Signature Page		47

EXPLANATORY NOTE

Unless otherwise indicated, all historical consolidated financial information in this Quarterly Report on Form 10-Q is information regarding Marina District Development Company, LLC, a New Jersey limited liability company ("MDDC"), the parent of Marina District Finance Company, Inc., a New Jersey corporation ("MDFC"). MDFC is a 100% owned finance subsidiary of MDDC, and it is also MDDC's only subsidiary. MDDC has fully and unconditionally guaranteed MDFC's securities; and accordingly, the condensed consolidated financial statements of MDDC (as parent) are included herein. Unless otherwise indicated or required by the context, the terms "we," "our," "us" and the "Company" refer to MDDC and MDFC.

PART I. Financial Information


Item 1.	Financial Statements

MARINA DISTRICT DEVELOPMENT COMPANY, LLC

CONDENSED CONSOLIDATED BALANCE SHEETS



(In thousands)	September 30,		December 31,
(Unaudited)	2014		2013
ASSETS
Current assets
Cash and cash equivalents	$	26,891	$	37,527
Restricted cash	5,821		—
Accounts receivable, net	36,055		33,328
Inventories	4,332		4,184
Prepaid expenses and other current assets	22,793		7,613
Income taxes receivable	9		1,037
Deferred income taxes	2,454		2,488
Total current assets	98,355		86,177
Property and equipment, net	1,180,777		1,212,934
Debt financing costs, net	9,537		11,347
Other assets, net	13,547		10,361
Total assets	$	1,302,216	$	1,320,819
LIABILITIES AND MEMBER EQUITY
Current liabilities
Current maturities of long-term debt	$	3,800	$	3,800
Accounts payable	3,149		5,924
Other current tax liabilities	3,597		—
Accrued liabilities	96,309		98,095
Total current liabilities	106,855		107,819
Long-term debt, net of current maturities	762,327		797,460
Deferred income taxes	9,202		7,049
Other long-term tax liabilities	9,639		12,470
Other liabilities	4,950		7,853
Commitments and contingencies (Note 6)
Member equity	409,243		388,168
Total liabilities and member equity	$	1,302,216	$	1,320,819

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

MARINA DISTRICT DEVELOPMENT COMPANY, LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



	Three Months Ended						Nine Months Ended
(In thousands)	September 30,						September 30,
(Unaudited)	2014			2013			2014			2013
REVENUES
Operating revenues
Gaming	$	187,556		$	176,982		$	507,841		$	472,042
Food and beverage	39,714			39,153			104,832			108,211
Room	35,624			33,981			90,795			89,130
Other	13,054			13,294			31,933			33,337
Gross revenues	275,948			263,410			735,401			702,720
Less promotional allowances	66,002			63,359			176,337			164,148
Net revenues	209,946			200,051			559,064			538,572
COSTS AND EXPENSES
Operating costs and expenses
Gaming	71,023			66,382			199,487			188,144
Food and beverage	19,723			19,100			53,663			54,475
Room	4,297			3,720			10,774			10,167
Other	10,939			11,370			26,082			26,890
Selling, general and administrative	31,973			36,832			101,930			111,227
Maintenance and utilities	15,069			16,008			47,068			44,683
Depreciation and amortization	14,819			14,565			44,173			46,273
Impairments of assets	—			—			—			5,032
Other operating items, net	(1,334		)	2,947			(1,737		)	3,352
Preopening expenses	—			415			269			469
Total operating costs and expenses	166,509			171,339			481,709			490,712
Operating income	43,437			28,712			77,355			47,860
Other expense
Interest expense, net	17,809			20,281			53,327			61,899
Loss on early extinguishments of debt	—			2,536			—			2,536
Total other expense	17,809			22,817			53,327			64,435
Income (loss) before state income taxes	25,628			5,895			24,028			(16,575		)
State income tax benefit (expense)	(2,651		)	(715		)	(2,953		)	763
Net income (loss)	$	22,977		$	5,180		$	21,075		$	(15,812	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

MARINA DISTRICT DEVELOPMENT COMPANY, LLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN MEMBER EQUITY



(In thousands)	Capital Contributions		Accumulated Deficit			Total Member Equity
(Unaudited)	Capital Contributions		Accumulated Deficit			Total Member Equity
Balances, January 1, 2014	$	446,700	$	(58,532	)	$	388,168
Net income	—		21,075			21,075
Balances, September 30, 2014	$	446,700	$	(37,457	)	$	409,243

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

MARINA DISTRICT DEVELOPMENT COMPANY, LLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



	Nine Months Ended
(In thousands)	September 30,
(Unaudited)	2014			2013
Cash Flows from Operating Activities
Net income (loss)	$	21,075		$	(15,812	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	44,173			46,273
Gain from insurance subrogation settlement	(2,197		)	—
Amortization of debt financing costs	1,950			1,067
Amortization of discounts on long-term debt	1,717			2,969
Deferred income taxes	2,187			(1,455		)
Provision for doubtful accounts	1,780			2,174
Noncash asset write-downs	—			5,236
Loss on early extinguishments of debt	—			2,536
Other operating activities	374			—
Changes in operating assets and liabilities:
Restricted cash	(5,821		)	—
Accounts receivable, net	(4,507		)	5,735
Inventories	(148		)	(109		)
Prepaid expenses and other current assets	(15,550		)	(3,220		)
Other current tax liabilities	3,597			—
Income taxes receivable/payable	1,028			(1,695		)
Other assets, net	(3,460		)	18,196
Accounts payable and accrued liabilities	(4,619		)	3,098
Other long-term tax liabilities	(2,831		)	692
Other liabilities	(2,903		)	(822		)
Net cash provided by operating activities	35,845			64,863
Cash Flows from Investing Activities
Capital expenditures	(11,623		)	(16,398		)
Insurance proceeds for replacement assets	2,197			—
Net cash used in investing activities	(9,426		)	(16,398		)
Cash Flows from Financing Activities
Borrowings under bank credit facility	410,900			297,100
Payments under bank credit facility	(444,900		)	(300,800		)
Payments to repurchase senior secured notes	—			(40,994		)
Payments on term loan	(2,850		)	—
Debt financing costs	(205		)	(2,546		)
Net cash used in financing activities	(37,055		)	(47,240		)
Increase (decrease) in cash and cash equivalents	(10,636		)	1,225
Cash and cash equivalents, beginning of period	37,527			34,125
Cash and cash equivalents, end of period	$	26,891		$	35,350

Supplemental Disclosure of Cash Flow Information
Cash paid for interest, net of amounts capitalized	$	60,177		$	59,876
Cash paid (received) for income taxes	(1,029		)	1,695
Supplemental Disclosure of Non-Cash Investing Activities
Payables for capital expenditures	$	58		$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

MARINA DISTRICT DEVELOPMENT COMPANY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013

______________________________________________________________________________________________________

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

Marina District Development Company, LLC, a New Jersey limited liability company ("MDDC"), is the parent of Marina District Finance Company, Inc., a New Jersey corporation ("MDFC"). MDFC is a 100% owned finance subsidiary of MDDC, which has fully and unconditionally guaranteed MDFC's securities.

MDDC was incorporated in July 1998 and has been operating since July 3, 2003. MDFC was incorporated in 2000 and has been a wholly owned subsidiary of MDDC since its inception. We developed, own and operate Borgata Hotel Casino and Spa, including The Water Club at Borgata (collectively, "Borgata"). Borgata is located on a 45.6-acre site at Renaissance Pointe in Atlantic City, New Jersey. Borgata is an upscale destination resort and gaming entertainment property.

Borgata was developed as a joint venture between Boyd Atlantic City, Inc. ("BAC"), a wholly owned subsidiary of Boyd Gaming Corporation ("Boyd"), and MAC, Corp. ("MAC"), a second tier, wholly owned subsidiary of MGM Resorts International (the successor-in-interest to MGM MIRAGE) ("MGM"). The joint venture operates pursuant to an operating agreement between BAC and MAC (the "Operating Agreement"), in which BAC and MAC each originally held a 50% interest in Marina District Development Holding Co., LLC, MDDC's parent holding company ("MDDHC").

As managing member of MDDHC pursuant to the terms of the Operating Agreement, BAC, through MDDHC, has responsibility for the oversight and management of our day-to-day operations. We do not presently record a management fee to BAC, as our management team performs these services directly or negotiates contracts to provide for these services. As a result, the costs of these services are directly borne by us and are reflected in our consolidated financial statements. Boyd, the parent of BAC, is a diversified operator of 21 wholly owned gaming entertainment properties. Headquartered in Las Vegas, Nevada, Boyd has other gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana and Mississippi.

On March 24, 2010, MAC transferred its 50% ownership interest (the "MGM Interest") in MDDHC, and certain land leased to MDDC, into a divestiture trust, of which MGM and its subsidiaries are the economic beneficiaries (the "Divestiture Trust"), for sale to a third-party in connection with MGM's settlement agreement with the New Jersey Division of Gaming Enforcement ("NJDGE"). MGM subsequently announced that it had entered into an amended settlement agreement with the NJDGE, as approved by the New Jersey Casino Control Commission ("NJCCC"). The amended agreement provided that until March 24, 2013, MGM had the right to direct the Divestiture Trust to sell the MGM Interest. If a sale was not concluded by that time, the Divestiture Trust was to be responsible for selling MGM's Interest during the following 12-month period, or not later than March 24, 2014. Subsequent to a Joint Petition of MGM, Boyd and MDDC, the NJCCC, on February 13, 2013, approved amendments to the Stipulation of Settlement and Trust Agreement which permitted MGM to file an application for a statement of compliance, which, if approved, would permit MGM to reacquire its interest in MDDC. On April 24, 2013, MGM submitted its application, and on September 10, 2014, the NJCCC approved MGM's application. As a result, the Divestiture Trust was dissolved as of September 30, 2014, and MGM reacquired its interest in MDDC as of such date.

There was no resulting direct impact on our consolidated financial statements from these events.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of MDDC have been prepared in accordance with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and footnote disclosures necessary for complete financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP").

The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP and include the accounts of MDDC and MDFC. All intercompany accounts and transactions have been eliminated.

The results for the periods indicated are unaudited, but reflect all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations and cash flows for the interim periods presented herein are not necessarily indicative of the results that would be achieved during a full year of operations or in future periods.

MARINA DISTRICT DEVELOPMENT COMPANY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013

____________________________________________________________________________________________________

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the U.S. Securities and Exchange Commission ("SEC") on March 28, 2014.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Restricted Cash

Restricted cash consists primarily of advance payments related to amounts restricted by regulation for online gaming purposes. These restricted cash balances are held by high credit quality financial institutions. The carrying value of these instruments approximates their fair value due to their short maturities.

CRDA Investments

Pursuant to the New Jersey Casino Control Act ("Casino Control Act"), as a casino licensee, we are assessed an amount equal to 1.25% of our land-based gross gaming revenues in order to fund qualified investments. This assessment is made in lieu of an investment alternative tax equal to 2.5% of land-based gross gaming revenues. The Casino Control Act also provides for an assessment of licensees equal to 2.5% of online gross gaming revenues, which is made in lieu of an investment alternative tax equal to 5.0% of online gross gaming revenues. Once our funds are deposited with the New Jersey Casino Reinvestment Development Authority ("CRDA"), qualified investments may be satisfied by: (i) the purchase of bonds issued by the CRDA at below market rates of interest; (ii) direct investment in CRDA-approved projects; or (iii) a donation of funds to projects as determined by the CRDA. According to the Casino Control Act, funds on deposit with the CRDA are invested by the CRDA and the resulting income is shared two-thirds to the casino licensee and one-third to the CRDA. Further, the Casino Control Act requires that CRDA bonds be issued at statutory rates established at two-thirds of market value.

We are required to make quarterly deposits with the CRDA to satisfy our investment obligations. At the date the obligation arises, we record charges to expense (i) pursuant to the respective underlying agreements for obligations with identified qualified investments, and (ii) by applying a one-third valuation reserve to our obligations that are available to fund qualified investments to reflect the anticipated below market return on investment. The one-third valuation reserve is adjusted accordingly, if necessary, when a qualified investment is identified. Our deposits with the CRDA, net of valuation reserves held by us, were $8.0 million and $4.6 million as of September 30, 2014 and December 31, 2013, respectively, and are included in other assets, net, on our condensed consolidated balance sheets.

Promotional Allowances

The retail value of accommodations, food and beverage, and other services furnished to guests on a complimentary basis is included in gross revenues and then deducted as promotional allowances. Promotional allowances also include incentives such as cash, goods and services (such as complimentary rooms and food and beverages) earned pursuant to our loyalty programs. We reward customers, through the use of loyalty programs, with points based on amounts wagered that can be redeemed for a specified period of time, principally for restricted free play slot machine credits and complimentary goods and services. We record the estimated retail value of these goods and services as revenue and then record a corresponding deduction as promotional allowances.

MARINA DISTRICT DEVELOPMENT COMPANY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013

____________________________________________________________________________________________________

The amounts included in promotional allowances are as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2014		2013		2014		2013
Rooms	$	20,145	$	20,342	$	54,480	$	54,735
Food and beverage	14,717		14,608		38,956		39,341
Other	31,140		28,409		82,901		70,072
Total promotional allowances	$	66,002	$	63,359	$	176,337	$	164,148

The estimated costs of providing such promotional allowances are as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2014		2013		2014		2013
Rooms	$	5,631	$	5,571	$	16,330	$	16,291
Food and beverage	11,315		11,012		30,586		29,947
Other	3,651		3,465		8,831		8,390
Total cost of promotional allowances	$	20,597	$	20,048	$	55,747	$	54,628

Gaming Taxes

In New Jersey, we are subject to an annual tax assessment based on gross gaming revenues of 8% on our land-based gross gaming revenues and 15% on our online gross gaming revenues. These gaming taxes are recorded as a gaming expense in the condensed consolidated statements of operations. These taxes were $14.3 million and $12.9 million during the three months ended September 30, 2014 and 2013, respectively, and $39.2 million and $34.7 million during the nine months ended September 30, 2014 and 2013, respectively.

Income Taxes

As a single member LLC, MDDC is treated as a disregarded entity for federal income tax purposes. As such, it is not subject to federal income tax and its income is treated as earned by its member, MDDHC. MDDHC is treated as a partnership for federal income tax purposes and federal income taxes are the responsibility of its members. In New Jersey, casino partnerships are subject to state income taxes under the Casino Control Act; therefore, MDDC, considered a casino partnership, is required to record New Jersey state income taxes. In 2004, MDDC was granted permission by the state of New Jersey, pursuant to a ruling request, to file a consolidated New Jersey corporation business tax return with the members of its parent, MDDHC. The amounts reflected in the condensed consolidated financial statements are reported as if MDDC was taxed for state purposes on a stand-alone basis; however, MDDC files a consolidated state tax return with the members of MDDHC.

The amounts due to these members are a result of each member's respective tax attributes included in the consolidated state tax return. A reconciliation of the components of our stand-alone state income taxes receivable is presented below:



	September 30,			December 31,
(In thousands)	2014			2013
Amounts payable to members of MDDHC	$	—		$	—
Amounts receivable - State	(9		)	(1,037		)
Income taxes payable (receivable), net	$	(9	)	$	(1,037	)

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

MARINA DISTRICT DEVELOPMENT COMPANY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013

____________________________________________________________________________________________________

Recently Issued Accounting Pronouncements

Accounting Standards Update 2014-15 Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern ("Update 2014-15")

In August 2014, the FASB issued Update 2014-15, which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The pronouncement is effective for annual periods ending after December 15, 2016, and interim periods thereafter, and early adoption is permitted. The impact of the adoption of Update 2014-15 is currently under evaluation.

Accounting Standards Update 2014-09 Revenue from Contracts with Customers (Topic 606) ("Update 2014-09")

In May 2014, the FASB issued Update 2014-09. Update 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is not permitted. The impact of the adoption of Update 2014-09 to the Company's consolidated financial position or results of operations is currently under evaluation.

A variety of proposed or otherwise potential accounting standards are currently being studied by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our consolidated financial statements.

NOTE 3. PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consists of the following:



	September 30,		December 31,
(In thousands)	2014		2013
Land	$	87,301	$	87,301
Buildings and improvements	1,420,281		1,416,432
Furniture and equipment	322,943		314,610
Construction in progress	3,772		5,533
Total property and equipment	1,834,297		1,823,876
Less accumulated depreciation	653,520		610,942
Property and equipment, net	$	1,180,777	$	1,212,934

Depreciation expense was $14.7 million and $14.3 million during the three months ended September 30, 2014 and 2013, respectively, and $43.8 million and $45.6 million during the nine months ended September 30, 2014 and 2013, respectively.

Construction in progress presented in the table above primarily relates to costs capitalized in conjunction with major improvements that have not yet been placed into service, and accordingly, such costs are not currently being depreciated.

NOTE 4. ACCRUED LIABILITIES

Accrued liabilities consist of the following:



	September 30,		December 31,
(In thousands)	2014		2013
Accrued payroll and related	$	23,331	$	20,736
Accrued interest	5,323		15,840
Accrued gaming liabilities	23,119		20,714
Player loyalty program liabilities	5,625		4,320
Accrued expenses and other liabilities	38,911		36,485
Total accrued liabilities	$	96,309	$	98,095

MARINA DISTRICT DEVELOPMENT COMPANY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013

____________________________________________________________________________________________________

NOTE 5. LONG-TERM DEBT, NET

Long-term debt, net of current maturities consists of the following:



	September 30, 2014
(In thousands)	Interest Rates at Sept. 30, 2014		Outstanding Principal		Unamortized Discount			Unamortized Origination Fees			Long-Term Debt, Net
Revolving Credit Facility	4.12	%	$	5,900	$	—		$	—		$	5,900
Incremental Term Loan	6.75	%	377,150		(3,155		)	—			373,995
9.875% Senior Secured Notes due 2018	9.88	%	393,500		(1,572		)	(5,696		)	386,232
			776,550		(4,727		)	(5,696		)	766,127
Less current maturities			3,800		—			—			3,800
Long-term debt, net			$	772,750	$	(4,727	)	$	(5,696	)	$	762,327



	December 31, 2013
(In thousands)	Interest Rates at Dec. 31, 2013		Outstanding Principal		Unamortized Discount			Unamortized Origination Fees			Long-Term Debt, Net
Revolving Credit Facility	3.86	%	$	39,900	$	—		$	—		$	39,900
Incremental Term Loan	6.75	%	380,000		(3,766		)	—			376,234
9.875% Senior Secured Notes due 2018	9.88	%	393,500		(1,811		)	(6,563		)	385,126
			813,400		(5,577		)	(6,563		)	801,260
Less current maturities			3,800		—			—			3,800
Long-term debt, net			$	809,600	$	(5,577	)	$	(6,563	)	$	797,460

At September 30, 2014, $5.9 million was outstanding under the revolving credit facility (the “Revolving Credit Facility”) component of the MDFC Amended and Restated Credit Agreement (the "Credit Facility"), with $3.2 million allocated to support a letter of credit, leaving remaining contractual availability of $50.9 million.

Subsequent to the end of third quarter 2014, the contractual availability under the Revolving Credit Facility was increased by $10 million under the provisions of an accordion feature of the Credit Facility which permits, among other things, an increase in the Revolving Credit Facility in an amount not to exceed $15 million.

Covenant Compliance

As of September 30, 2014, we believe that we were in compliance with the financial and other covenants of our debt instruments.

NOTE 6. COMMITMENTS AND CONTINGENCIES

Commitments

There have been no material changes to our commitments described under Note 6, Commitments and Contingencies, in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 28, 2014.

Contingencies

Borgata Property Taxes

We have filed tax appeal complaints, in connection with our property tax assessments for tax years 2009 through 2014, in New Jersey Tax Court ("Tax Court"). The trial for tax years 2009 and 2010 was held during the second quarter of 2013 and a decision was issued on October 18, 2013. The assessor valued our real property at approximately $2.3 billion. The Tax Court found in our favor and reduced our real property valuation to $880 million and $870 million for tax years 2009 and 2010, respectively. The City of Atlantic City (the "City") filed an appeal in the New Jersey Superior Court - Appellate Division ("Appellate Court") in November 2013. No trial date has been set for the Appellate Court hearing. We have paid our property tax obligations consistent with the assessor’s valuation and based on the Tax Court’s decision, we estimate the 2009 and 2010 property tax refunds and related statutory interest will be approximately $48.0 million and $11.2 million, respectively. We can provide no assurances that

MARINA DISTRICT DEVELOPMENT COMPANY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013

____________________________________________________________________________________________________

the Tax Court’s decision in the 2009-2010 appeal will be upheld at the appellate level. Due to the uncertainty surrounding the ultimate resolution of the City’s appeal, we will not recognize any gain until a final, non-appealable decision has been rendered.

On June 5, 2014, we entered into a settlement agreement with the City. The agreement resolved the tax appeal complaints we filed in connection with property tax assessments for tax years 2011 through 2014. Under the terms of the agreement, we are entitled to receive a tax refund of $88.25 million for tax years 2011 through 2013, as well as an estimated tax credit of $17.85 million for tax year 2014. Additionally, the City has agreed to a defined property tax valuation for tax year 2015. Although the tax rate for 2015 is unknown, we believe that the revised valuation will result in significantly lower real estate taxes as compared to 2013. In exchange, we have agreed to relinquish our right to further contest the property tax assessments for tax years 2011 through 2015, contingent upon the City fulfilling its obligations under the agreement. The agreement does not affect the pending appeals of the property tax assessments for tax years 2009 and 2010. Per the terms of the agreement, the City intends to fulfill its obligation to pay the refund to us through a bond issuance. The ordinance to issue the bonds was approved by applicable state and local agencies in September 2014; however, the occurrence and timing of such issuance continues to be subject to general market conditions. In the event that the City does not issue bonds, or otherwise fails to pay the refund, we retain our right to compel a trial on the filed appeals. We cannot be certain that the City will issue bonds or fund their obligations under the agreement through other sources. Due to this uncertainty, we will not record the recovery of the $88.25 million in previously paid property taxes until the City has successfully issued bonds or obtained other dedicated sources of funding in an amount sufficient to pay the refund for tax years 2011-2013 per the terms of the agreement.

Legal Matters

We are subject to various claims and litigation in the ordinary course of business. In our opinion, all pending legal matters are either adequately covered by insurance, or, if not insured, will not have a material adverse impact on our financial position, results of operations or cash flows.

NOTE 7. FAIR VALUE MEASUREMENTS

We have adopted the authoritative accounting guidance for fair value measurements, which does not determine or affect the circumstances under which fair value measurements are used, but defines fair value, expands disclosure requirements around fair value and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions

These inputs create the following fair value hierarchy:


•	Level 1: Quoted prices for identical instruments in active markets.


•	Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.


•	Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

As required by the guidance for fair value measurements, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Thus, assets and liabilities categorized as Level 3 may be measured at fair value using inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Management's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels.

Balances Measured at Fair Value

The fair value of our cash and cash equivalents was $26.9 million and $37.5 million as of September 30, 2014 and December 31, 2013, respectively. The fair value of our restricted cash was $5.8 million as of September 30, 2014. The fair value of our cash and cash equivalents and restricted cash, classified in the fair value hierarchy as Level 1, is based on statements received from our banks at September 30, 2014 and December 31, 2013. The fair value of our CRDA deposits was $8.0 million and $4.6 million as of September 30, 2014 and December 31, 2013, respectively. The fair value of our CRDA deposits, classified in the fair value hierarchy as Level 3, is based on estimates of the realizable value applied to the balances on statements received from the CRDA at September 30, 2014 and December 31, 2013.

MARINA DISTRICT DEVELOPMENT COMPANY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013

____________________________________________________________________________________________________

The following table summarizes the fair value of the Company's Level 3 assets:



	Three Months Ended
	September 30,
(In thousands)	2014			2013
Balance at July 1,	$	6,728		$	25,114
Deposits	1,964			1,738
Included in earnings	(655		)	(581		)
Settlements	—			(22,545		)
Ending balance at September 30,	$	8,037		$	3,726



	Nine Months Ended
	September 30,
(In thousands)	2014			2013
Balance at January 1,	$	4,613		$	28,464
Deposits	5,482			5,145
Included in earnings	(1,799		)	(7,338		)
Settlements	(259		)	(22,545		)
Ending balance at September 30,	$	8,037		$	3,726

Balances Disclosed at Fair Value

The following tables present the fair value measurement information about our long-term debt:



	September 30, 2014
	Outstanding Face				Estimated Fair		Fair Value
(In thousands)	Amount		Carrying Value		Value		Hierarchy
Revolving Credit Facility	$	5,900	$	5,900	$	5,900	Level 2
Incremental Term Loan	377,150		373,995		376,396		Level 2
9.875% Senior Secured Notes due 2018	393,500		386,232		413,175		Level 1
Total debt	$	776,550	$	766,127	$	795,471



	December 31, 2013
	Outstanding Face				Estimated Fair		Fair Value
(In thousands)	Amount		Carrying Value		Value		Hierarchy
Revolving Credit Facility	$	39,900	$	39,900	$	39,900	Level 2
Incremental Term Loan	380,000		376,234		381,900		Level 2
9.875% Senior Secured Notes due 2018	393,500		385,126		425,472		Level 1
Total debt	$	813,400	$	801,260	$	847,272

The estimated fair value of our Revolving Credit Facility at September 30, 2014 and December 31, 2013 approximates its carrying value due to the short-term nature and variable repricing of the underlying Eurodollar loans comprising our Revolving Credit Facility. The estimated fair value of our incremental term loan is based on a relative value analysis performed on or about September 30, 2014 and December 31, 2013. The estimated fair value of our senior secured notes is based on quoted market prices as of September 30, 2014 and December 31, 2013.

There were no transfers between Level 1, Level 2 or Level 3 measurements during the nine months ended September 30, 2014.

MARINA DISTRICT DEVELOPMENT COMPANY, LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013

____________________________________________________________________________________________________

NOTE 8. SUBSEQUENT EVENTS

We have evaluated all events or transactions that occurred after September 30, 2014. During this period, up to the filing date, we did not identify any subsequent events, the effects of which would require disclosure or adjustment to our financial position or results of operations, except as previously noted in Note 5, Long-Term Debt, Net.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with, and is qualified in its entirety by, the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Unless the context otherwise requires, all references herein to "we," "our," "us" and the "Company," or similar terms, refer to Marina District Development Company, LLC ("MDDC") and Marina District Finance Company, Inc. ("MDFC").

Overview

We developed, own and operate Borgata Hotel Casino and Spa, including The Water Club at Borgata (collectively, "Borgata"), located on a 45.6-acre site within the Marina District of Atlantic City, New Jersey. Since its opening on July 3, 2003, our property has been the leading hotel, casino and spa in the Atlantic City market. The property is an upscale destination resort that features a 160,000 square foot casino and 2,767 guest rooms and suites, comprised of 1,970 guest rooms and suites at the Borgata hotel and 797 guest rooms and suites at The Water Club. Borgata features five fine-dining restaurants, six casual dining restaurants, eight quick dining options, 14 retail boutiques, two European-style spas, two nightclubs and over 8,200 parking spaces. In addition, the property contains approximately 88,000 square feet of meeting and event space, as well as two entertainment venues. Our location within the Marina District provides guests with convenient access to the property via the Atlantic City Expressway Connector tunnel, without the delays associated with driving to competing casinos located on the Boardwalk of Atlantic City.

On March 24, 2010, MAC transferred its 50% ownership interest (the "MGM Interest") in MDDHC, and certain land leased to MDDC, into a divestiture trust, of which MGM and its subsidiaries are the economic beneficiaries (the "Divestiture Trust"), for sale to a third-party in connection with MGM's settlement agreement with the New Jersey Division of Gaming Enforcement ("NJDGE"). MGM subsequently announced that it had entered into an amended settlement agreement with the NJDGE, as approved by the New Jersey Casino Control Commission ("NJCCC"). The amendment provided that until March 24, 2013, MGM had the right to direct the Divestiture Trust to sell the MGM Interest. If a sale was not concluded by that time, the Divestiture Trust was to be responsible for selling MGM's Interest during the following 12-month period, or not later than March 24, 2014. Subsequent to a Joint Petition of MGM, Boyd and MDDC, the NJCCC, on February 13, 2013, approved amendments to the Stipulation of Settlement and Trust Agreement which permitted MGM to file an application for a statement of compliance, which, if approved, would permit MGM to reacquire its interest in MDDC. On April 24, 2013, MGM submitted its application, and on September 10, 2014, the NJCCC approved MGM's application. As a result, the Divestiture Trust was dissolved as of September 30, 2014, and MGM reacquired its interest in MDDC as of such date.

There was no resulting direct impact on our consolidated financial statements from these events.

Overall Outlook

We continually work to position Borgata for greater success by strengthening our existing operations and growing through capital investment and other strategic initiatives. In November 2013, we launched our real money online gaming site under the provisions of the New Jersey legislation authorizing intrastate internet gaming. Working in collaboration with bwin.party Digital Entertainment PLC ("bwin"), we offer a full suite of games, including poker, slots and table games, under the Borgata brand and have captured a 37.0% market share since our launch based on the percentage of gaming revenues reported by online gaming sites operating in the state. We expect that we will face increased competition, both to our online gaming site and to our land-based operations, from internet lotteries, sweepstakes, and other internet wagering gaming services.

As part of our ongoing efforts to maintain our position as the premiere hotel and casino in Atlantic City, our estimated total capital expenditures for 2014 are expected to be approximately $25.0 million and are primarily comprised of various maintenance capital projects. We intend to fund such capital expenditures through the revolving credit facility (the "Revolving Credit Facility") component of our Amended and Restated Credit Agreement (the "Credit Facility") with MDDC, certain financial institutions, and Wells Fargo Bank, National Association, as administrative agent, letter of credit issuer and swing line lender, as well as through operating cash flows.

Due to a number of factors affecting consumers, including reduced consumer spending and depressed home prices, the outlook for the gaming industry remains highly unpredictable. Because of these uncertain conditions, we have increasingly focused on managing our operating margins. Our present objective is to manage our cost and expense structure to cope with the increase in regional competition and generate strong and stable cash flow.

We sponsor our own program to expand our brand awareness and leverage our strong loyalty card program, predicated on efforts to use marketing and promotional programs to retain existing customers, maintain trip frequency and acquire new customers. We offer our guests comprehensive, competitive and targeted marketing and promotion programs. The "My Borgata Rewards" program, for example, offers players a hassle-free way of earning slot dollars, comp dollars and other rewards and benefits based on game play, with convenient on-line access to account balances and other program information. In addition, we strive to differentiate our casino with high-quality guest service to further enhance overall brand and customer experience to position Borgata as the must visit property in Atlantic City. We maintain a database of customers enrolled in "My Borgata Rewards," which is used to support our marketing efforts.

We use several key performance measures to evaluate the operations of our business. These key performance measures include the following:


•	Gaming revenue measures:


◦	Slot handle, which means the dollar amount wagered in slot machines, and table game drop, which means the total amount of cash deposited in table games drop boxes, plus the sum of markers issued at all table games. Slot handle and table game drop are measures of volume and/or market share.


◦	Slot win and table game hold, which mean the difference between customer wagers and customer winnings on slot machines and table games, respectively. Slot win and table game hold percentages represent the relationship between slot handle and table game drop to gaming wins and losses.


•	Food and beverage revenue measures:


◦	Average guest check, which means the average amount spent per customer visit and is a measure of volume and product offerings; number of guests served ("food covers"), which is a measure of volume; and the cost per guest served, which is a measure of operating margin.


•	Room revenue measures:


◦	Hotel occupancy rate, which measures the utilization of our available rooms; and average daily rate ("ADR"), which is a price measure.

We continue to be the leader in table games and slot market share in the Atlantic City market. Our land-based business achieved 27.7% of the table game drop and 23.3% of the slot handle market share for the nine months ended September 30, 2014, which reflects the success of our focus on managing existing operations and reinvesting in our business to retain our position as the leading resort in the market.

RESULTS OF OPERATIONS

Summary of Operating Results

The following provides a summary of certain key operating results:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2014		2013		2014		2013
Net revenues	$	209,946	$	200,051	$	559,064	$	538,572
Operating income	43,437		28,712		77,355		47,860
Net income (loss)	22,977		5,180		21,075		(15,812		)

Net revenues

Net revenues increased $9.9 million, or 4.9%, during the three months ended September 30, 2014, compared to the same period in the prior year. Our real-money online gaming website, launched in the fourth quarter of 2013, contributed $6.1 million in revenues, and the revenue for our land-based operation increased $3.7 million. Land-based gaming revenues remained relatively stable when compared to the corresponding period of the prior year, while room revenue increased $1.6 million due to an increase in occupancy and average daily rate, and food and beverage revenues increased by $0.6 million related to an increase in average guest check during the period.

Our net revenues for the nine months ended September 30, 2014, as compared to the nine months ended September 30, 2013 increased by $20.5 million, or 3.8%. Our real-money online gaming website contributed $20.6 million in revenues, while the land-based operation revenue remained consistent with prior year levels. Land-based table game revenue increased 4.5% from prior year due to an increase in table game hold of 0.83 percentage points, offset by a table game drop decrease of 1.5%. Land-based slot revenue increased 1.7% compared to the same period in the prior year related to an increase in slot hold of 0.33 percentage points, offset by a slot handle decrease of 1.7%. The land-based increases were offset by a 4.0% increase in promotional allowances when compared to the corresponding period of the prior year.

Borgata retains the position as the premiere destination in the Atlantic City market and achieved 27.7% of the table game drop and 23.3% of the slot handle market share for the nine months ended September 30, 2014. Additionally, we are the dominant leader in land-based poker win and achieved 54.5% of the market share for the nine months ended September 30, 2014. We are also the leader in the New Jersey online gaming market with a 27.4% market share for the first nine months of 2014 based on the percentage of gaming revenues reported by online gaming sites operating in the state.

Operating income

Operating income increased $14.7 million and 51.3% during the three months ended September 30, 2014, as compared to the corresponding period of the prior year, primarily due to a $8.1 million reduction in property tax expense reflecting the impact of the settlement agreement entered into with the City of Atlantic City during second quarter 2014, the inclusion in the current year quarter of a $1.7 million gain for the subrogation of insurance claims related to the fire the occurred during construction of the Water Club and the flow through effect of the increase in revenues.

Operating income increased $29.5 million, or 61.6%, during the nine months ended September 30, 2014, as compared to the corresponding period of the prior year, primarily due to the impact of a $20.0 million reduction of our year-to-date property tax expense resulting from the settlement with the City of Atlantic City, the inclusion in the prior year of a $2.1 million charge for an ALAE adjustment related to our self-insurance programs and the flow-through effect of the increased revenues. In addition, on May 8, 2013, we entered into an agreement with the Casino Reinvestment Development Authority ("CRDA") that included a 50% donation and a 50% refund of $45.1 million of our available deposits. As a result, the carrying values of our CRDA-related accounts were reviewed and adjusted to their net realizable values resulting in a charge of $5.0 million, which was included in impairments of assets on our condensed consolidated statements of operations during the second quarter of 2013.

Net income (loss)

Net income for the three months ended September 30, 2014, was $23.0 million as compared to net income of $5.2 million during the comparable prior year period. The $17.8 million improvement was due to the increase in operating income as described above, combined with a $2.5 million decline in interest expense resulting from the impact on interest rates of refinancing activities completed in 2013.

Net income for the nine months ended September 30, 2014, was $21.1 million as compared to net loss of $15.8 million during the comparable prior year period. The increase in current year net income was due to increased revenues, operating income improvements and an $8.6 million decline in interest expense resulting from the impact on interest rates of refinancing activities completed in 2013.

Operating Revenues

Gaming revenues are significantly comprised of the win from our slot machine operations, table game win and win from online gaming. We derive the majority of our gross revenues from our gaming operations. Gaming revenues produced approximately 68% and 67% of gross revenues for the three months ended September 30, 2014 and 2013, respectively, and 69% and 67% of gross revenues for the nine months ended September 30, 2014 and 2013, respectively. Food and beverage gross revenues represent the next most significant revenue source, which produced approximately 14% and 15% of gross revenues for the three months ended September 30, 2014 and 2013, respectively, and 14% and 15% of gross revenues for the nine months ended September 30, 2014 and 2013, respectively. Room revenue produced approximately 13% of gross revenues for each of the three months ended September 30, 2014 and 2013, and 12% and 13% of gross revenues for the nine months ended September 30, 2014 and 2013, respectively. Other revenues (including our spa, retail, entertainment and ancillary services) separately contributed approximately 5% or less of gross revenues during each of these periods.

The following table presents our gross revenues and expenses:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2014			2013			2014			2013
GROSS REVENUES
Gaming	$	187,556		$	176,982		$	507,841		$	472,042
Food and beverage	39,714			39,153			104,832			108,211
Room	35,624			33,981			90,795			89,130
Other	13,054			13,294			31,933			33,337
Gross revenues	275,948			263,410			735,401			702,720
Less promotional allowances	66,002			63,359			176,337			164,148
Net revenues	$	209,946		$	200,051		$	559,064		$	538,572

OPERATING COSTS AND EXPENSES
Gaming	$	71,023		$	66,382		$	199,487		$	188,144
Food and beverage	19,723			19,100			53,663			54,475
Room	4,297			3,720			10,774			10,167
Other	10,939			11,370			26,082			26,890
	$	105,982		$	100,572		$	290,006		$	279,676
MARGINS
Gaming	62.1		%	62.5		%	60.7		%	60.1		%
Food and beverage	50.3		%	51.2		%	48.8		%	49.7		%
Room	87.9		%	89.1		%	88.1		%	88.6		%
Other	16.2		%	14.5		%	18.3		%	19.3		%

Gaming

Gross gaming revenues increased $10.6 million, or 6.0%, during the three months ended September 30, 2014, as compared to the corresponding period of the prior year, primarily due to the addition of $7.9 million of gross revenues from our online gaming operation that was launched in November 2013. Gross gaming revenues for our land-based operation increased $2.7 million as compared to the prior year primarily due to a 270 basis point increase in slot hold percentage and a 1.0% increase in table games drop. These increases were partially offset by a 0.4% decline in slot handle.

Gross gaming revenues increased $35.8 million, or 7.6%, during the nine months ended September 30, 2014, as compared to the corresponding period of the prior year, primarily due to the addition of $26.2 million of gross revenues from our online gaming operation that was launched in November 2013. Gross gaming revenues for our land-based operation increased $9.6 million as compared to the prior year due to a 326 basis point increase in slot hold percentage and a 832 basis point increase in table game hold percentage, partially offset by declines in slot handle and table game drop of 1.7% and 1.5%, respectively.

Food and Beverage

Gross food and beverage revenues increased by $0.6 million, or 1.4%, during the three months ended September 30, 2014, compared with the corresponding period of the prior year. The increase was primarily due to an increase in the average guest check during the period.

Gross food and beverage revenues decreased by $3.4 million, or 3.1%, during the nine months ended September 30, 2014, compared with the corresponding period of the prior year. The decrease was primarily due to a 1.9% decrease in the number of guests served reflecting the impact of severe winter weather on visitation to the property, while the average guest check increased only 0.6%.

Room

During the three months ended September 30, 2014, we had 244,721 occupied rooms, with an average occupancy rate of 96.1% at an average daily rate of $142.98, compared to 242,718 occupied rooms, with an average occupancy rate of 95.3% at an average daily rate of $137.68 during the comparable period in the prior year, the effect of which resulted in a 4.8% increase in gross room revenues.

Gross room revenues for the nine months ended September 30, 2014, increased 1.9% with the comparable prior year period. During the nine months ended September 30, 2014, we had 661,991 occupied rooms, with an average occupancy rate of 87.6% at an average daily rate of $134.69, compared to 664,552 occupied rooms, with an average occupancy rate of 88.0% at an average daily rate of $131.95 during the comparable period in the prior year.

Other Costs and Expenses

The following costs and expenses are discussed below:



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(In thousands)	2014			2013		2014			2013
Selling, general and administrative	$	31,973		$	36,832	$	101,930		$	111,227
Maintenance and utilities	15,069			16,008		47,068			44,683
Depreciation and amortization	14,819			14,565		44,173			46,273
Impairments of assets	—			—		—			5,032
Other operating items, net	(1,334		)	2,947		(1,737		)	3,352
Preopening expenses	—			415		269			469

Selling, General and Administrative

Selling, general and administrative expenses, as a percentage of gross revenues, were 11.6% and 14.0% during the three months ended September 30, 2014 and 2013, respectively. Expenses decreased as a percentage of gross revenues primarily due to the decrease in property tax expense as a result of the settlement agreement with the City of Atlantic City.

Selling, general and administrative expenses, as a percentage of gross revenues, were 13.9% and 15.8% during the nine months ended September 30, 2014 and 2013, respectively. Selling, general and administrative expenses decreased as a percentage of gross revenues as compared to the same period in the prior year due to the $13.5 million adjustment of our year-to-date property tax accrual in the current year, the effect of which was partially offset by the additional marketing expenses incurred related to our online gaming operation.

Maintenance and Utilities

Maintenance and utilities expenses, as a percentage of gross revenues, were 5.5% and 6.1% during the three months ended September 30, 2014 and 2013, respectively.

Maintenance and utilities expenses, as a percentage of gross revenues, were 6.4% during each of the nine months ended September 30, 2014 and 2013.

Depreciation and Amortization

Depreciation and amortization expense increased $0.3 million during the three months ended September 30, 2014 compared to the same period in 2013.

Depreciation and amortization expense decreased $2.1 million during the nine months ended September 30, 2014 compared to the same period in 2013 due to the full depreciation of certain assets since the prior year period.

Impairments of assets

On May 8, 2013, we entered into an agreement with the CRDA that included a 50% donation and a 50% refund of $45.1 million of our available deposits. As a result, the carrying values of our CRDA-related accounts were reviewed and adjusted to their net realizable values resulting in a charge of $5.0 million in the second quarter of 2013.

Other Operating Items, net

Other operating items, net, generally includes unusual, nonrecurring charges and credits. The amount of the net credit in the three and nine months ended September 30, 2014 included recoveries resulting from the receipt of insurance proceeds related to the fire that occurred during the construction of The Water Club in 2007 of $1.7 million and $2.2 million, respectively. The net charge reported for the three and nine months ended September 30, 2013 was primarily due to a $2.1 million accrual of additional allocated loss adjustment expense ("ALAE") related to our self-insurance programs.

Preopening Expenses

We expense certain costs of start-up activities as incurred.

Other Expenses

Interest Expense

The following table summarizes information with respect to our interest expense on outstanding indebtedness:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2014			2013			2014			2013
Interest expense, net	$	17,809		$	20,281		$	53,327		$	61,899
Average outstanding long-term debt	794,197			786,675			800,274			797,970
Weighted average interest rate	8.3		%	10.3		%	8.3		%	10.3		%

Interest expense decreased $2.5 million, or 12.2%, during the three months ended September 30, 2014, and decreased $8.6 million, or 13.8%, during the nine months ended September 30, 2014, due to lower average long-term debt balances and a lower weighted average interest rate compared to the corresponding period in the prior year reflecting the impact of the refinancing activities completed in 2013.

State Income Taxes

The effective state income tax rate for the three months ended September 30, 2014 and 2013 was 10.3% and 12.1%, respectively. The effective state income tax rate for the nine months ended September 30, 2014 and 2013 was 12.3% and 4.6%, respectively. The difference in our effective tax rate and the New Jersey statutory tax rate of 9% is due to the impact of certain recurring permanent tax adjustments and accrued interest on uncertain tax benefits. Such adjustments, which are unaffected by the level of income or loss from continuing operations, increase the statutory tax provision or reduce the statutory tax benefit on our pretax income or loss, respectively. The fluctuation in our effective tax rate for the three and nine months ended September 30, 2014 and 2013 is due to the level of pretax income relative to our permanent tax adjustments and the shift between income and loss during the respective periods.

LIQUIDITY AND CAPITAL RESOURCES

Financial Position

There were no significant changes in our financial position since December 31, 2013.

Working Capital

Historically, we have operated with minimal levels of working capital in order to minimize borrowings and related interest costs under our Revolving Credit Facility. As of September 30, 2014 and December 31, 2013, we had balances of cash and cash equivalents of $26.9 million and $37.5 million, respectively. In addition, we had a working capital deficit of $8.5 million as of September 30, 2014 and $21.6 million as of December 31, 2013.

Our Revolving Credit Facility generally provides us with necessary funds for our day-to-day operations and interest payments, as well as capital expenditures. On a daily basis, we evaluate our cash position and adjust the balance under our Revolving Credit Facility, as necessary, by either borrowing or paying it down with excess cash. We also plan the timing and the amounts of our capital expenditures. We believe that our cash and cash equivalents balance, our cash flows from operations and existing financing sources will be sufficient to meet our normal operating requirements and to fund capital expenditures during at least the next twelve months. The source of funds for the repayment of our debt or our capital expenditures is derived primarily from cash flows from operations and availability under our Revolving Credit Facility, to the extent availability exists after we meet our working capital needs, and subject to restrictive covenants. Subsequent to the end of third quarter 2014, the contractual availability under the Revolving Credit Facility was increased by $10 million under the provisions of an accordion feature of the Credit Facility which permits, among other things, an increase in the Revolving Credit Facility in an amount not to exceed $15 million.

The indenture governing the 9.875% Senior Secured Notes (the "2018 Notes") allows for the incurrence of additional indebtedness, if after giving effect to such incurrence, our coverage ratio (as defined in the indenture, essentially a ratio of Consolidated EBITDA to fixed charges, including interest) for a trailing four-quarter period on a pro forma basis would be at least 2.0 to 1.0. Should this provision prohibit the incurrence of additional debt, we may still borrow under our existing Credit Facility. At September 30, 2014, approximately $50.9 million of additional capacity was available under the Revolving Credit Facility.

If availability does not exist under our Revolving Credit Facility, or we are not otherwise able to draw funds on our Credit Facility, additional financing may not be available to us, and if available, may not be on terms favorable to us.

Liquidity

Our property has historically generated significant operating cash flow, with the majority of our revenue being cash-based. Our industry is capital intensive; we rely heavily on the ability of our property to generate operating cash flows in order to repay debt financing and associated interest costs, pay income taxes, fund maintenance capital expenditures, and provide excess cash for future improvements and payment of limited distributions, subject to restrictive covenants related to our debt obligations.

We generate substantial cash flows from operating activities. We use the cash flows generated by our operations to fund debt service, to reinvest in existing facilities for both refurbishment and expansion projects, to pursue additional growth opportunities and to pay allowable distributions to the members of MDDHC, subject to restrictive covenants related to our debt obligations. When necessary, we supplement the cash flows generated by our operations with funds provided by financing activities to balance our cash requirements.

Our ability to fund our operations, pay our debt obligations and fund planned capital expenditures depends, in part, upon economic and other factors that are beyond our control, and disruptions in capital markets and restrictive covenants related to our debt could impact our ability to secure additional funds through financing activities. We cannot provide assurances that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us, to fund our liquidity needs and pay our indebtedness. If we are unable to meet our liquidity needs or pay our indebtedness when it is due, we may have to reduce or delay refurbishment and expansion projects, reduce expenses, sell assets or attempt to restructure our debt. In addition, we have pledged substantially all of our assets as collateral for our senior secured notes and our Credit Facility, and if the obligation to repay such debt is accelerated, for any reason, there can be no assurance that we will have sufficient assets to repay our indebtedness.

Indebtedness

Credit Facility

On July 24, 2013, MDFC entered into the Credit Facility with MDDC, certain financial institutions, and Wells Fargo Bank, National Association, as administrative agent, letter of credit issuer and swing line lender.

The Credit Facility provides for a $60 million senior secured revolving credit facility (the "Revolving Credit Facility") which matures in February 2018 (or earlier upon the occurrence or non-occurrence of certain events).

The Credit Facility includes an accordion feature, which permits: (a) an increase in the Revolving Credit Facility in an amount not to exceed $15 million and (b) the issuance of senior secured term loans to refinance the 2018 Notes outstanding pursuant to the Indenture, in each case, subject to the satisfaction of certain conditions. Subsequent to the end of third quarter 2014 we exercised this feature and were granted a $10 million increase in our Revolving Credit Facility.

The Credit Facility is guaranteed on a senior secured basis by MDDC and any future subsidiaries of MDDC and is secured by a first priority lien on substantially all of the assets of MDFC, MDDC and any future subsidiaries of MDDC, subject to certain exceptions. The obligations under the Credit Facility will have priority in payment to the payment of the 2018 Notes.

Outstanding borrowings under the Credit Facility accrue interest, at the option of MDFC, at a rate based upon either: (i) the highest of (a) the agent bank's quoted prime rate, (b) the one-month Eurodollar rate plus 1.00%, and (c) the daily federal funds rate plus 0.50%, or (ii) the Eurodollar rate, plus with respect to each of clause (i) and (ii), an applicable margin as specified in the Credit Facility. In addition, a commitment fee is incurred on the unused portion of the Revolving Credit Facility ranging from 0.50% per annum to 0.75% per annum.

The blended interest rate for outstanding borrowings under our Credit Facility was 4.1% and 3.9% at September 30, 2014, and December 31, 2013, respectively. At September 30, 2014, $5.9 million was outstanding under the Credit Facility, with $3.2 million allocated to support a letter of credit, leaving contractual availability of $50.9 million.

None of BAC, its parent, its affiliates, or MGM are guarantors of our Credit Facility, as amended.

The Credit Facility contains customary affirmative and negative covenants, including but not limited to, (i) establishing a minimum Consolidated EBITDA requirement (as defined in the Credit Facility) of $110 million over each trailing twelve-month period ending on the last day of each calendar quarter; (ii) imposing limitations on MDFC's and MDDC's ability to incur additional debt, create liens, enter into transactions with affiliates, merge or consolidate, and engage in unrelated business activities; and (iii) imposing restrictions on MDDC's ability to pay dividends.

We believe we were in compliance with these covenants at September 30, 2014.

Incremental Term Loan

On December 16, 2013, MDFC entered into a Lender Joinder Agreement (the "Incremental Term Loan"), among MDDC, Wells Fargo Bank, National Association, as administrative agent, and Deutsche Bank AG New York Branch, as incremental term lender. The Incremental Term Loan increased the term commitments under the Credit Facility by an aggregate amount of $380 million. The Incremental Term Loan was fully funded on December 16, 2013, and proceeds were used to repay MDFC’s outstanding 2015 Notes.

The interest rate per annum applicable to the Incremental Term Loan is either (a) the Effective Eurodollar Rate (the greater of the Eurodollar Rate in effect for such interest period and 1.00%) plus the Term Loan Applicable Rate (ranging from 5.50% to 5.75%) if and to the extent the Incremental Term Loan is a Eurodollar Rate Loan under the Credit Facility, or (b) the Base Rate (Effective Eurodollar Rate for one month plus 1.00%) plus the Term Loan Applicable Rate (ranging from 4.50% to 4.75%) if and to the extent the Incremental Term Loan is a Base Rate Loan under the Credit Facility. The Incremental Term Loan was issued with 1.00% of original issue discount.

Original Issue Discount

The original issue discount has been recorded as an offset to the principal amount of the Incremental Term Loan and is being accreted to interest expense over the term of the loan using the effective interest method. At September 30, 2014, the effective interest rate on the Incremental Term Loan was 6.8%.

Senior Secured Notes

Significant Terms

The 2018 Notes are guaranteed on a senior secured basis by MDDC and any future restricted subsidiaries of MDDC. The 2018 Notes contain covenants that, among other things, limit MDFC's ability and the ability of MDDC to (i) incur additional indebtedness or liens; (ii) pay dividends or make distributions; (iii) make certain investments; (iv) sell or merge with other companies; and (v) enter into certain types of transactions. We believe we were in compliance with these covenants at September 30, 2014.

Original Issue Discount

The original issue discount has been recorded as an offset to the principal amount of these notes and is being accreted to interest expense over the term of the notes using the effective interest method. At September 30, 2014, the effective interest rate on the 2018 Notes was 10.3%.

Cash Flows Summary



	Nine Months Ended
	September 30,
(In thousands)	2014			2013
Net cash provided by operating activities	$	35,845		$	64,863
Cash flows from investing activities:
Capital expenditures	(11,623		)	(16,398		)
Insurance proceeds for replacement assets	2,197			—
Net cash used in investing activities	(9,426		)	(16,398		)
Cash flows from financing activities:
Borrowings under bank credit facility	410,900			297,100
Payments under bank credit facility	(444,900		)	(300,800		)
Payments to repurchase senior secured notes	—			(40,994		)
Payments on term loan	(2,850		)	—
Debt financing costs	(205		)	(2,546		)
Net cash used in financing activities	(37,055		)	(47,240		)
Increase (decrease) in cash and cash equivalents	$	(10,636	)	$	1,225

Cash Flows from Operating Activities

During the nine months ended September 30, 2014, our operating cash flows declined from a net cash inflow of $64.9 million during the prior year period to $35.8 million in the current year. Operating cash inflow decreased due to the inclusion in the prior year period of $22.5 million from the 50% refund of our CRDA deposits, the impact on operations during the first quarter of the current year period of severe winter weather, the expenses incurred related to the online gaming business and the timing of refunds of previously paid property tax deposits to be received from the City of Atlantic City.

Cash Flows from Investing Activities

Capital expenditures during the nine months ended September 30, 2014 and 2013 were $11.6 million and $16.4 million, respectively. Cash paid for capital expenditures during both periods related primarily to routine maintenance capital spending.

Cash Flows from Financing Activities

We have significant uses for our cash flows, including capital expenditures, interest payments, the repayment of debt, and distributions to our member, although limited by the restrictive covenants related to our Credit Facility. Depending on our cash flow needs, we borrow and repay amounts under our Revolving Credit Facility to manage our overall cash position.

During the nine months ended September 30, 2014, we paid a net $34.0 million on our Credit Facility, compared to net payments of $3.7 million during the nine months ended September 30, 2013.

Other Items Affecting Liquidity

We anticipate the ability to fund our capital requirements using cash flows from operations and availability under our Credit Facility, to the extent availability exists after we meet our working capital needs for the next twelve months. Any additional financing that is needed may not be available to us or, if available, may not be on terms favorable to us. The outcome of the following specific matters, including our commitments and contingencies, may also affect our liquidity.

Capital Spending and Development

We continually perform on-going refurbishment and maintenance at our facilities to maintain our standards of quality. Certain of these maintenance costs are capitalized, if such improvement or refurbishment extends the life of the related asset, while other maintenance costs that do not so qualify are expensed as incurred. Although we do not have any expansion projects underway, if any opportunities arise, such projects could require significant capital commitments. The commitment of capital and the related timing thereof are contingent upon, among other things, negotiation of final agreements and receipt of approvals from the appropriate regulatory bodies. We must also comply with covenants and restrictions set forth in our debt agreements.

Our estimated total capital expenditures for 2014 are expected to be approximately $25.0 million and are primarily comprised of maintenance capital projects. We intend to fund such capital expenditures through our Credit Facility and operating cash flows.

Commitments

There have been no material changes to our commitments described under Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Quarterly Report on Form 10-Q for the period ended June 30, 2014, as filed with the SEC on August 13, 2014.

Contingencies

Borgata Property Taxes

Legal Matters

Off Balance Sheet Arrangements

Our off balance sheet arrangements as defined in Item 303(a)(4)(ii) and described under Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 28, 2014, consist of the following:

Utility Contract

In 2005, we amended our executory contracts with a wholly owned subsidiary of a local utility company and extended the terms to 20 years from the opening of our rooms expansion. The utility company provides us with electricity and thermal energy (hot water and chilled water). Obligations under the thermal energy executory contract contain both fixed fees and variable fees based upon usage rates. The fixed fee components under the thermal energy executory contract are currently estimated at approximately $11.7 million per year. We also committed to purchase a certain portion of our electricity demand at essentially a fixed rate, which is estimated to be approximately $1.7 million in the aggregate per year. Electricity demand in excess of the commitment is subject to market rates based on our tariff class.

Letter of Credit

We had a $3.2 million outstanding letter of credit as of September 30, 2014.

Critical Accounting Policies

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our condensed consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. In accordance with GAAP, we are required to make estimates and assumptions that affect the reported amounts included in our condensed consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. On an ongoing basis, management reviews and refines those estimates, the following of which materially impact our condensed consolidated financial statements: the recoverability of long-lived assets; determination of self-insured reserves; and provisions for deferred tax assets, certain tax liabilities and uncertain tax positions.

Judgments are based on information including, but not limited to, historical experience, industry trends, conventional practices, expert opinions, terms of existing agreements and information from outside sources. Judgments are subject to an inherent degree of uncertainty, and therefore actual results could differ from these estimates.

A description of our critical accounting policies can be found in our Annual Report on Form 10-K for the year ended December 31, 2013, as originally filed with the SEC on March 28, 2014.

Recently Issued Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, see Note 2, Summary of Significant Accounting Policies-Recently Issued Accounting Pronouncements, in the notes to the consolidated financial statements (unaudited).

Important Information Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Quarterly Report on Form 10-Q contains statements that are forward-looking, including, but not limited to, statements relating to our business strategy and development activities as well as other capital spending, financing sources, the effects of regulation (including gaming and tax regulations), expectations concerning future operations, margins, profitability and competition. Any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, in some cases you can identify forward-looking statements by terminology containing works such as "may," "will," "might," "expect," "believe," "anticipate," "outlook," "could," "would," "estimate," "pursue," "target," "project," "intend," "plan," "should," "assume," and "continue," or the negative thereof or comparable terminology. Such forward-looking statements may include, but are not limited to, the following:


•	Our efforts to strengthen existing operations and growth through capital investment and other strategic initiatives;


•	The effect of our ongoing litigation on our financial position, results of operations and cash flows;


•	Significant disruptions in the global capital markets, such as the disruptions in recent years, have in the past, and may in the future adversely impact the ability of borrowers, including our company, to access capital;


•	The sufficiency of our cash and cash equivalents, our cash flows from operations and existing financing sources to fund normal operating requirements and capital expenditures during the next twelve months;


•	Our estimated total capital expenditures for 2014, our expectation that they will be primarily comprised of various maintenance capital projects and our intention to fund such capital expenditures through our Credit Facility and operating cash flows;


•	The effect of fluctuations in interest rates on our results;


•	The possibility of expansion of gaming facilities in nearby states, including the anticipated timing and scope of the development plans of our competitors, and its potential effect on our business;


•	The estimates underlying our critical accounting policies;


•	The effect of recently enacted and proposed legislation, including without limitation, federal and state legislation on internet gaming, legislation concerning the regulation of gaming, bans on smoking and increases and decreases in tax rates, on our business and the business of our competitors;


•	Our estimated exposure with respect to the UNITE HERE National Retirement Fund;


•	Our estimated annual energy costs;


•	Our estimated pro rata share of payments under the AC Alliance;


•	The factors that contribute to our ongoing success and our ability to be successful in the future;


•	Our business model, areas of focus and strategy for realizing improved results;


•	Competition, including expansion of gaming into additional markets, including the internet gaming market, the impact of competition on our operations, our ability to respond to such competition, and our expectations regarding continued competition in the markets in which we compete;


•	Our expectations, including our responsibility and control over day-to-day operations and the expected use of managerial resources;


•	The type of covenants that will be included in any future debt instruments;


•	Our ability to meet our projected operating and maintenance capital expenditures;


•	Our ability to pay dividends;


•	Our commitment to finding opportunities to strengthen our balance sheet and to operate more efficiently;


•	The impact of new accounting pronouncements on our condensed consolidated financial statements;


•	That the Credit Facility and our respective cash flows from operating activities will be sufficient to meet our respective projected operating and maintenance capital expenditures for the next twelve months;


•	Our renovation plans, including the scope of such plans, expected costs, financing (including sources thereof and our expectation that long-term debt will substantially increase in connection with such projects), timing and the ability to achieve market acceptance;


•	That margin improvements will remain a driver of profit growth for us going forward;


•	That operating results for previous periods are not necessarily indicative of future performance;


•	Our expectations regarding our cost containment efforts;


•	That estimates and assumptions made in the preparation of financial statements in conformity with U.S. GAAP may differ from actual results;


•	Expectations, plans, beliefs, hopes or intentions regarding the future; and


•	Assumptions underlying any of the foregoing statements.

Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially from such forward-looking statements include, but are not limited to the following:


•	The effects of intense competition that exists in the gaming industry;


•	Our ability to comply with debt covenants and generate sufficient cash flow to service our substantial debt;


•	The recent economic downturn and its lingering impact on consumer and discretionary spending, and the risk that a slowing or stoppage of the economic recovery or a return to an economic downturn will result in further decreases in the number of visitors to Atlantic City and the amount they spend on gaming, dining, entertainment and other travel and leisure activities at Borgata;


•	Our dependence on Borgata for all of our cash flow, which subjects us to greater risks than a gaming company with more operating properties or that is more geographically diverse;

•

The effects of intense competition that exists in the gaming industry and the risk of increased competition arising from, among other things, new casino development and construction activities in Atlantic City and other states in the mid-Atlantic region from which we attract most of our customers; aggressive marketing, promotional and other actions taken by our competitors in reaction to adverse economic conditions; and changes to gaming regulations or gaming taxes that expand gaming, lower the gaming tax rate in other nearby states or that otherwise result in increased competition to us;


•	The risk that our casino, hotel and other operations could be halted for a temporary or extended period of time, as a result of casualty, flooding, forces of nature, snowstorms, hurricanes and other adverse weather conditions, mechanical failure, extended or extraordinary maintenance, government shutdowns, labor disputes or regulatory compliance issues, among other causes;


•	The effects of events adversely impacting the mid-Atlantic region from which we draw most of our customers, including the effects of an economic downturn, war, terrorist or similar activity or adverse weather conditions and other natural disasters or the outbreak of an infectious disease impacting the mid-Atlantic region;


•	The possibility that our insurance coverage may not be adequate to cover the losses that our property could suffer;


•	The effects of the extensive governmental gaming regulation and taxation policies that we are subject to, as well as any changes in laws and regulations, including increased taxes and smoking restrictions, which could harm our business and increase competition;


•	The risk that we fail to maintain the integrity of internal customer information, which could adversely affect us;


•	The risk that our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our Credit Facility and senior secured notes;


•	The risk that negative industry or economic trends, including reduced estimates of future cash flows, disruptions to our business, slower growth rates or lack of growth in our business, may result in significant write-downs or impairments in future periods;


•	The risk that our existing gaming license is not renewed, or that we may not receive gaming or other necessary licenses for new projects;


•	The risk relating to legal proceedings;


•	Our dependence on key members of existing management and our ability to attract, retain and motivate employees;


•	The effects of federal, state and local laws affecting our business such as the regulation of smoking, the regulation of directors, officers, key employees and partners and regulations affecting business in general;


•	The risk that our capital improvement projects may not be completed, if at all, on time or within established budgets, or that any project will result in increased earnings to us;


•	Our ability to obtain capital commitments to fund our capital improvement projects on terms favorable to us, if at all;


•	The risks relating to compliance with extensive environmental regulation, which create uncertainty regarding future environmental expenditures and liabilities;


•	The risk of interruptions to our rights in the land MDDC leases under long-term leases for our expansions and parking spaces;


•	Financial community and rating agency perceptions of us, and the effect of economic, credit and capital market conditions on the economy and the gaming and hotel industry;


•	The risk inherent by virtue of our ownership by Boyd (through its ownership of BAC) and MGM, and the possibility that their interests as equity holders may compete or otherwise may conflict with our interests or the interests of a holder of the notes as a creditor;


•	Delays and significant cost increases, shortages of materials, shortages of skilled labor or work stoppages;


•	Construction scheduling, engineering, environmental, permitting, construction or geological problems, weather interference, floods, fires or other casualty losses;


•	Failure by us to obtain financing on acceptable terms, or at all;


•	Failure to obtain necessary government or other approvals on time, or at all;


•	The risk that new gaming licenses or jurisdictions become available (or offer different gaming regulations or taxes) that results in increased competition to us;


•	The risk that we will need to refinance all or a portion of our indebtedness at or before maturity, but that we may however be unable to refinance our respective outstanding indebtedness as it comes due, or that if we do refinance, the terms may not be favorable to us;


•	The effect of the expansion of legalized gaming in the United States, particularly in the mid-Atlantic region and on Native American tribal lands, as well as the potential proliferation of legalized internet gaming; and


•	Our expected liabilities under the multiemployer pensions inf which we participate.

Additional factors that could cause actual results to differ are discussed in Part II. Item 1A. Risk Factors of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, and in other current and periodic reports provided by us from time to time. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.


Item 3.	Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We do not hold any market risk sensitive instruments for trading purposes. Our primary exposure to market risk is interest rate risk, specifically long-term U.S. treasury rates and the applicable spreads in the high-yield investment market, short-term and long-term LIBOR rates, and short-term Eurodollar rates, and their potential impact on our long-term debt. We attempt to limit our exposure to interest rate risk by managing the mix of our long-term fixed-rate borrowings and

short-term borrowings under our bank credit facility. We do not currently utilize derivative financial instruments for trading or speculative purposes.

As of September 30, 2014, our long-term variable-rate borrowings represented approximately 49.3% of total long-term debt. Based on September 30, 2014 debt levels, a 100 basis point change in LIBOR or the base rate would cause the annual interest costs to change by approximately $3.8 million.

See also "Liquidity and Capital Resources".


Item 4.	Controls and Procedures

As of the end of the period covered by this Report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II. Other Information


Item 1.	Legal Proceedings

We are subject to various claims and litigation in the normal course of business. Management believes all pending legal matters are either adequately covered by insurance, or if not insured, will not have a material adverse impact on our financial position, results of operations or cash flows.


Item 1A.	Risk Factors

The risks and uncertainties described below are not the only ones facing us. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our senior secured notes could decline significantly, and investors could lose all or part of their investment. You should carefully consider the risks described below together with all of the other information included in this Quarterly Report on Form 10-Q. We encourage investors to review the risks and uncertainties relating to our business disclosed under Part I. Item 1A. Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC on March 28, 2014.

Risks Related to our Business

Our business is particularly sensitive to reductions in discretionary consumer spending as a result of downturns in the economy.

Consumer demand for entertainment and other amenities at casino hotel properties, such as ours, are particularly sensitive to downturns in the economy and the corresponding impact on discretionary spending on leisure activities. Changes in discretionary consumer spending or consumer preferences brought about by factors such as perceived or actual general economic conditions, effects of declines in consumer confidence in the economy, including the recent housing, employment and credit crisis, the impact of high energy and food costs, the increased cost of travel, the potential for bank failures, decreased disposable consumer income and wealth, or fears of war and future acts of terrorism could further reduce customer demand for the amenities that we offer, thus imposing practical limits on pricing and negatively impacting our results of operations and financial condition.

For example, weak economic conditions during the recent economic downturn adversely affected tourism and spending in Atlantic City. Since our business model relies on consumer expenditures on entertainment, luxury and other discretionary items, a slowing or stoppage of the recent economic recovery or a return to an economic downturn will further adversely affect our results of operations and financial condition.

Intense competition exists in the gaming industry, and increased competition may have an adverse effect on our business results of operations and financial condition.

The gaming industry is highly competitive for both customers and employees, including those at the management level. We compete with numerous casinos and hotel casinos of varying quality and size in market areas where our properties are located. We also compete with other non-gaming resorts and vacation destinations, and with various other casino and other entertainment businesses and with online gaming sites, and could compete with any new forms of gaming that may be legalized in the future. The casino entertainment business is characterized by competitors that vary considerably in their size, quality of facilities, number of operations, brand identities, marketing and growth strategies, financial strength and capabilities, level of amenities, management talent and geographic diversity. In most markets, we compete directly with other casino facilities operating in the immediate and surrounding market areas. In some markets, we face competition from nearby markets in addition to direct competition within our market areas.

In addition, MGM owns land adjacent to Borgata, a portion of which consists of common roads, landscaping and master plan improvements, and a portion of which was planned for a wholly-owned development, MGM Grand Atlantic City. As part of MGM's settlement agreement with the NJDGE and the NJCCC (together, the "Gaming Authorities"), MGM has agreed that an affiliate of MGM would withdraw its license application for this development.

Internet gaming is also expected to bring additional opportunities and enhanced competition for casino revenues and customers. Following the legalization in New Jersey in February 2013, we launched our real-money online gaming site with bwin in November 2013. While our site has captured a 37.0% market share since its launch, we expect that we will face increased competition, both to our online gaming site and to our property, from internet lotteries, sweepstakes, and other internet wagering gaming services, which allow their customers to wager on a wide variety of sporting events and play Las Vegas-style casino games from home or in non-casino settings. Such internet wagering services are often illegal under federal law but operate from overseas locations, and as such are sometimes accessible to domestic gamblers. We plan to continue to engage in internet gaming, but our competitors also plan to enter the internet gaming market, and we can make no guarantees that we will emerge as a successful provider of Internet gaming to the gaming public.

We expect that we will face increased competition from internet gaming as the potential for legalized internet gaming continues to grow. There are current proposals to legalize internet gaming under federal law. Additionally, several states are currently considering legislation that would legalize internet gaming at the state level. For example, Nevada recently amended its internet gaming law to permit Nevada licensed internet providers to commence internet poker and to allow Nevada to enter into agreements with other states to create multi-state poker wagering. Expansion of internet gaming in other jurisdictions could further compete with our traditional operations, which could have an adverse impact on our business and result of operations.

The expansion of casino gaming in or near the mid-Atlantic region from which Borgata attracts and expects to attract most of our customers has had an adverse effect on our business, results of operations and financial condition. In January 2010, table game legislation in Pennsylvania was signed into law which allows up to 250 table games at each of the twelve largest authorized casinos and up to 50 table games at each of the remaining two smaller authorized casinos. Table games became operational at the existing casinos in the Philadelphia region in mid-July 2010. In addition, other states near New Jersey, including New York, Delaware and Maryland, either have or are currently contemplating gaming legislation. In January 2010, Delaware legalized table games, which became operational in June 2010 at all three Delaware casinos. In November 2012, Maryland legalized table games, which became operational beginning in March 2013. Convenience may be a more important factor than amenities for some customers, especially mid-week and repeat customers. These customers may prefer the convenience of a closer drive to a nearby casino rather than dealing with a longer drive to enjoy the amenities that Borgata has to offer. Expansion of gaming facilities in Pennsylvania and other nearby states therefore has resulted in fewer customer visits to Borgata, which has adversely impacted our business, results of operations and financial condition.

Ballot measures or other voter-approved initiatives to allow gaming in jurisdictions where gaming, or certain types of gaming (such as slots), was not previously permitted could be challenged, and, if such challenges are successful, these ballot measures or initiatives could be invalidated. Furthermore, there can be no assurance that there will not be similar or other challenges to legalized gaming in existing or current markets, including the Internet gaming market that has yet to be established, in which we may operate or have development plans, and successful challenges to legalized gaming could require us to abandon or substantially curtail our operations or development plans in those locations, which could have a material adverse effect on our financial condition and results of operations.

Increased competition also may result from changes to existing gaming regulations. For example, in January 2011, legislation was passed into law in New Jersey that changes the minimum room requirements and size of casino hotels. Instead of 500-room hotels with casinos of at least 60,000 square feet that New Jersey law previously required, developers will be able to build smaller, 20,000 square foot, casinos at hotels with at least 200 rooms. The new smaller casinos will be required to pay a tax rate of more than 14 percent on their gross gaming revenue to compensate for the reduced investment compared to existing, larger casinos, which pay just over 9 percent on such revenues. The legislation may result in the development of additional smaller, boutique hotel-casinos in the Atlantic City market, which will further increase competition. In addition, competition could further increase if, as has been contemplated in the past, the State of New Jersey approves the installation of video lottery terminals ("VLTs") at horse racing facilities in New Jersey.

We also compete with legalized gaming from casinos located on Native American tribal lands. Expansion of Native American gaming in the Northeast or mid-Atlantic region from which we draw most of our customers, could have an adverse effect on our operating results. Native American gaming facilities typically have a significant operating advantage over our property due to lower gaming fees or taxes, allowing those facilities to market more aggressively and to expand or update their facilities at an accelerated rate. These competing Native American properties could continue to have an adverse impact on our operations.

If our competitors operate more successfully than we do, either in traditional casino gaming or Internet gaming, if they attract customers away from us as a result of aggressive pricing and promotion, if they are more successful than us in attracting and retaining employees, if their properties are enhanced or expanded, if they operate in jurisdictions that give them operating advantages due to differences or changes in gaming regulations or taxes, or if additional hotels and casinos are established in and around the location in which we conduct business, we may lose market share or the ability to attract or retain employees. In particular, the expansion of casino gaming in or near any geographic area from which we attract or expect to attract a significant number of our customers could have a significant adverse effect on our business, financial condition and results of operations.

The global financial crisis and a prolonged economic recovery may have an effect on our business and financial condition, as well as our access to capital, in ways that we currently cannot accurately predict.

The significant economic distress affecting financial institutions during the recent global financial crisis had far-reaching adverse consequences across many industries, including the gaming industry. The crisis greatly restricted the availability of capital and caused the cost of capital (if available) to be much higher than it has traditionally been. Although the financial markets have recovered and availability of capital has increased, the financial markets remain volatile. Although we successfully refinanced a significant amount of our indebtedness in 2013, we have no assurance that we will continue to have access to credit or capital markets at desirable times or at rates that we would consider acceptable, and the lack of such funding could have a material adverse effect on our business, results of operations and financial condition, including our ability to refinance our indebtedness, our flexibility to react to changing economic and business conditions and our ability or willingness to fund new development projects.

We are not able to predict the duration or strength of the economic recovery or the resulting impact on the solvency or liquidity of our lenders. Prolonged slow growth or a downturn, or further worsening or broadening of adverse conditions in worldwide and domestic economies could affect our lenders. If a large percentage of our lenders were to file for bankruptcy or otherwise default on their obligations to us, we may not have the liquidity under our Credit Facility to fund our current projects. There is no certainty that our lenders will continue to remain solvent or fund their respective obligations under our Credit Facility. If we were otherwise required to renegotiate or replace our Credit Facility, there is no assurance that we would be able to secure terms that are as favorable to us, if at all.

We may incur impairments to long-lived assets.

In accordance with the provisions of the authoritative accounting guidance for the impairment or disposal of long-lived assets, we test long-lived assets for impairment if a triggering event occurs. No long-lived asset impairment charges were recorded in 2013. During the year ended December 31, 2012, we recorded a non-cash impairment charge of $2.8 million related to a parking structure project that was abandoned. If our estimates of projected cash flows related to our assets are not achieved, we may be subject to future impairment charges, which could have a material adverse impact on our financial statements.

Terrorism and the uncertainty of military conflicts, natural disasters and contagious diseases, as well as other factors affecting discretionary consumer spending, may harm our operating results.

The strength and profitability of our business depends on consumer demand for hotel casino resorts in general and for the type of upscale amenities Borgata offers. Changes in consumer preferences or discretionary consumer spending could harm our business. The terrorist attacks of September 11, 2001, other terrorist activities in the United States and elsewhere, military conflicts in Iraq, Afghanistan and in the Middle East, outbreaks of, or the perception of, public health threats and pandemics, adverse weather conditions and natural disasters, among other things, have had negative effects on travel and leisure expenditures. In addition, other factors affecting travel and discretionary consumer spending, including general economic conditions, disposable consumer income, fears of further economic decline and reduced consumer confidence in the economy, may negatively impact our business. We cannot predict the extent to which similar events and conditions may continue to affect us in the future. An extended period of reduced discretionary spending and/or disruptions or declines in tourism could significantly harm our operations.

Furthermore, our facilities are subject to the risk that operations could be halted for a temporary or extended period of time, as a result of casualty, flooding, forces of nature, adverse weather conditions, mechanical failure, or extended or extraordinary maintenance, among other causes. In particular, Borgata is located in a flood zone and is subject to disruption from hurricanes, snow storms and other adverse weather conditions. See below, "We own facilities that are located in areas that experience extreme weather conditions." Severe weather conditions during the first half of 2010 made it very difficult for many of our customers to travel to Borgata, contributing to a decline in revenues during the period. The residual impact from these record winter storms resulted in day trip visitations to Atlantic City that were reduced or delayed as regional school calendars were extended in order to make up for prior school closures. Additionally, extreme heat and low precipitation levels in the second quarter of 2010, particularly in the month of June, had an adverse impact on visitation and spending at our property. If there is a prolonged disruption at our property due to natural disasters, terrorist attacks or other catastrophic events, our results of operations and financial condition could be materially adversely affected.

If extreme weather adversely impacts general economic or other conditions in the area in which our property is located or from which we draw our patrons or prevents patrons from easily coming to our property, our business, financial condition and results of operations could be materially affected.

Our expansion and renovation projects may face significant risks inherent in construction projects.

We regularly evaluate expansion and renovation opportunities. Any development projects we may undertake will be subject to many other risks inherent in the expansion or renovation of an existing enterprise, including unanticipated design, construction, regulatory, environmental and operating problems and lack of demand for our projects. Our current and future projects could also experience:


•	changes to plans and specifications;


•	delays and significant cost increases;


•	shortages of materials;


•	shortages of skilled labor or work stoppages for contractors and subcontractors;


•	disputes with and defaults by contractors and subcontractors;


•	health and safety incidents and site accidents;


•	engineering problems, including defective plans and specifications;


•	poor performance or nonperformance by any of our joint venture partners or other third parties on whom we place reliance;


•	changes in laws and regulations, or in the interpretation and enforcement of laws and regulations, applicable to gaming facilities, real estate development or construction projects;


•	unforeseen construction scheduling, engineering, environmental, permitting, construction or geological problems;


•	environmental issues, including the discovery of unknown environmental contamination;


•	weather interference, floods, fires or other casualty losses;


•	other unanticipated circumstances or cost increases; and


•	failure to obtain necessary licenses, permits, entitlements or other governmental approvals.

The occurrence of any of these development and construction risks could increase the total costs of any current or future construction projects, or delay or prevent the construction or opening or otherwise affect the design and features of any of our construction projects, which could materially adversely affect our plan of operations, financial condition and ability to satisfy our debt obligations.

In addition, actual costs and construction periods for any of our projects can differ significantly from initial expectations. Our initial project costs and construction periods are based upon budgets, conceptual design documents and construction schedule estimates prepared at inception of the project in consultation with architects and contractors. Many of these costs can increase over time as the project is built to completion. The cost of any project may vary significantly from initial budget expectations and we may have a limited amount of capital resources to fund cost overruns. If we cannot finance cost overruns on a timely basis, the completion of one or more projects may be delayed until adequate funding is available. We can provide no assurance that any project will be completed on time, if at all, or within established budgets, or that any project will result in increased earnings to us. Significant delays, cost overruns, or failures of our projects to achieve market acceptance could have a material adverse effect on our business, financial condition and results of operations.

Although we design our projects to minimize disruption of our existing business operations, expansion and renovation projects require, from time to time, all or portions of affected existing operations to be closed or disrupted. Any significant disruption in operations of our property could have a significant adverse effect on our business, financial condition and results of operations.

The failure to obtain necessary government approvals in a timely manner, or at all, can adversely impact our various expansion and renovation projects.

Certain permits, licenses and approvals necessary for some of our current or anticipated projects have not yet been obtained. The scope of the approvals required for expansion, development, investment or renovation projects can be extensive and may include gaming approvals, state and local land-use permits and building and zoning permits. Unexpected changes or concessions required by local, state or federal regulatory authorities could involve significant additional costs and delay the scheduled openings of the facilities. We may not obtain the necessary permits, licenses and approvals within the anticipated time frames, or at all.

If we are unable to finance expansion or renovation projects, as well as other capital expenditures, through cash flow from operations, borrowings under the Credit Facility and additional financings, our expansion, development, investment and renovation efforts will be jeopardized.

We intend to finance any future expansion and any current or future development, investment or renovation projects, as well as our other capital expenditures, primarily with cash flow from operations, borrowings under the Credit Facility, and debt financings. If we are unable to finance expansion, development, investment and renovation projects, or our other capital expenditures, we will have to adopt one or more alternatives, such as reducing, delaying or abandoning planned expansion, development, investment and renovation projects as well as other capital expenditures, selling assets, restructuring debt, reducing the amount or suspending or discontinuing the distribution of dividends, obtaining additional financing or joint venture partners, or modifying the Credit Facility. These sources of funds may not be sufficient to finance our expansion, development, investment and renovation projects, and other financing may not be available on acceptable terms, in a timely manner, or at all. In addition, our existing indebtedness contains certain restrictions on our ability to incur additional indebtedness.

Significant disruptions in the global capital markets, such as the disruptions in recent years, have in the past, and may in the future, adversely impact the ability of borrowers such as our company to access capital. We anticipate that funding for any of our expansion projects would come from cash flows from operations and availability under the Credit Facility (to the extent that availability exists under the Credit Facility, as applicable, after we meet our working capital needs).

If availability under the Credit Facility does not exist or we are otherwise unable to make sufficient borrowings thereunder, any additional financing that is needed may not be available to us or, if available, may not be on terms favorable to us. As a result, if we are unable to obtain adequate project financing in a timely manner, or at all, we may be forced to sell assets in order to raise capital for projects, limit the scope of, or defer such projects, or cancel the projects altogether. In the event that we are unable to access capital with more favorable terms, additional equity and/or credit support may be necessary to obtain construction financing for the remaining cost of the project.

We are entirely dependent on Borgata for all of our cash flows, which subjects us to greater risks than a gaming company with more operating properties.

We are entirely dependent upon Borgata for all of our cash flow. As a result, we are subject to a greater degree of risk than a gaming company that has more operating properties or is more geographically diverse. The risks to which we have a greater degree of exposure include the following:


•	local economic and competitive conditions in the Atlantic City gaming market;


•	changes in New Jersey governmental laws and regulations, including gaming laws and regulations;


•	snowstorms, hurricanes, flooding and other adverse weather conditions, natural and other disasters affecting the mid-Atlantic region;


•	a decline in the number of visitors to Atlantic City;


•	a decrease in gaming and non-gaming activities at our properties; and


•	the outbreak of public health threats at our property or in Atlantic City, or the perception that such threats exist, including pandemic health threats such as the avian influenza, SARS, Ebola or the H1N1 flu, among others.

In particular, our continued success depends upon our ability to draw customers from New Jersey, New York, Pennsylvania, Maryland and other nearby Northeast and Mid-Atlantic states. Adverse weather conditions, road construction, high gasoline prices, disruption in air travel and other factors could make it more difficult for potential customers to travel to Borgata and deter customers from visiting our property. Specifically, adverse weather conditions have had and may continue to have damaging effects on our operations. Since we operate only in the Atlantic City market, these and other risks common to the Atlantic City gaming industry may have a greater impact on us than on a gaming company with more properties or that is more geographically diversified. A prolonged disruption at our property due to any such conditions could materially adversely affect our business, results of operations and financial condition.

The Atlantic City market was substantially impacted by the recent national recession and weak economic conditions in the United States and elsewhere. A slowing or stoppage of the economic recovery or a return to an economic downturn will further adversely affect the Atlantic City market and our results of operations and financial condition.

The Atlantic City market was substantially impacted by the recent national recession, which began in December 2007, and weak economic conditions in the United States and elsewhere. As a result, consumers continued to curb discretionary spending during the recession and recovery, which had an adverse effect on the Atlantic City market. While the overall U.S. economy has shown signs of recovery, we are unable to determine the sustainability or strength of any economic recovery or its impact on the Atlantic City market. Furthermore, the Atlantic City market may not fully recover from the recent years' decline and decline further. A slowing or stoppage of the economic recovery or a return to an economic downturn will further adversely affect the Atlantic City market and our results of operations and financial condition.

We may become involved in legal proceedings that, if adversely adjudicated or settled, could negatively impact our business, results of operations and financial condition.

From time to time, we are defendants in various lawsuits relating to matters incidental to our business. The nature of our business subjects us to the risk of lawsuits filed by customers, past and present employees, competitors, business partners and others in the ordinary course of business. As with all litigation, no assurance can be provided as to the outcome of these matters and in general, litigation can be expensive and time consuming. We may not be successful in the defense or prosecution of these lawsuits, which could result in settlements or damages that could negatively impact our business, results of operations and financial condition.

The loss of the services of key personnel could have a material adverse effect on our business.

The leadership of the key members of our existing management team has been a critical element of our success. Our other executive officers and other members of senior management have substantial experience and expertise in our business and have made significant contributions to our growth and success. The unexpected loss of services of one or more of these individuals could also adversely affect us. We are not protected by key man or similar life insurance covering members of our senior management.

If we are unable to attract, retain and motivate employees, we may not be able to compete effectively and will not be able to expand our business.

Our success and ability to grow are dependent, in part, on our ability to hire, retain and motivate a sufficient number of talented people, with the increasingly diverse skills needed to serve clients and expand our business. Competition for highly qualified, specialized technical, managerial, and, particularly, consulting personnel is intense. Recruiting, training, retention and benefit costs place significant demand on our resources. Additionally, the recent downturn in the gaming, travel and leisure sectors has made recruiting executives to our business more difficult. The inability to attract qualified employees in sufficient numbers to meet particular demands or the loss of a significant number of our employees could have an adverse effect on us.

Work stoppages and other labor problems could negatively impact our business, results of operations and financial condition.

Approximately 2,203 of our employees were represented by four labor unions as of December 31, 2013. Additionally, three of our four collective bargaining agreements had expired in April 2014 and employees covered by the expired agreement continue to work during the negotiations of a new agreement. A lengthy strike or other work stoppage could have an adverse effect on our business, results of operations and financial condition. From time to time, we have also experienced attempts to unionize certain of our non-union employees. While these efforts have not resulted in any success to date, we cannot provide any assurance that we will not experience additional and more successful union activity in the future. There has been a trend towards unionization for employees in Atlantic City. The impact of this union activity is undetermined and could negatively impact our business, results of operations and financial condition.

We are a participant in multi-employer pension plans, and the plans have been certified in critical status by the funds' actuary.

In connection with our collective bargaining agreement with the culinary and hotel workers' union, Local 54/UNITE HERE, we participate in the UNITE HERE National Retirement Fund pension plan (the "Fund"). On March 31, 2010, as a result of the extraordinary decline in the financial markets and downturn in the economy, the Fund was certified in critical status by the Fund's actuary under the federal multiemployer plan funding laws pursuant to the Pension Protection Act of 2006 (the "PPA"). In connection with the certification, the Fund's board of trustees has adopted a rehabilitation plan effective on April 1, 2010 (the "Rehabilitation Plan") with the goal of enabling the Fund to emerge from critical status by January 1, 2023.

The Rehabilitation Plan provides for certain increases in employer contributions and, in some cases, a reduction in participant benefits. We are required to agree with Local 54/UNITE HERE on the adoption of one of three schedules of future accrual and contribution rates proposed under the Rehabilitation Plan, all of which provide for increased monthly contributions. On May 28, 2010, we agreed upon a schedule with Local 54/UNITE HERE pursuant to which we began making increased monthly contributions to the Fund on October 1, 2011.

Our current monthly pension contributions to the Fund are approximately $0.6 million, and our unfunded vested liability to the Fund is $61.0 million for the plan year beginning on January 1, 2013.

Additionally, in connection with our collective bargaining agreement with the Local 68 Engineers Union Pension Plan, NJ Carpenters Pension Fund, and the International Painters and Allied Trades Industry Pension Plan, we participate in other multiemployer pension plans that have been certified in critical status under the federal multiemployer plan funding laws pursuant to the PPA. The boards of trustees of these plans have adopted rehabilitation plans and we are currently in discussions with the boards regarding our level of participation in the rehabilitation plans. The impact of the rehabilitation plans is not expected to have a material adverse effect on our financial condition, results of operations or cash flows. Effective as of July 1, 2011, the Local 68 Engineers Union Pension Plan was no longer certified as endangered or in critical status. Our current monthly pension contributions to the funds associated with these plans approximate less than $0.1 million per month in the aggregate. As of January 1, 2011, our aggregate unfunded vested liability to these funds was approximately $4.5 million.

A renewed economic decline could have a significant adverse effect on the financial condition of the Fund, or other funds to which we contribute, which may require us to make contributions in addition to those already contemplated. Any such increases in our required contributions could adversely affect our results of operations. Under applicable federal law, any employer contributing to a multiemployer pension plan that completely ceases participating in the plan while it is underfunded is subject to payment of such employer's assessed share of the aggregate unfunded vested benefits of the plan. In certain circumstances, an employer can also be assessed withdrawal liability for a partial withdrawal from a multiemployer pension plan. In August 2012, the Fund provided an estimate to us of our exposure, assuming a hypothetical immediate and complete withdrawal from the Fund at the time of such estimate. Based on that estimate, the pre-tax withdrawal liability as of January 1, 2013 in that scenario could have been in excess of $61.0 million. In addition, we estimate the pretax withdrawal liability for the other funds to which we contribute to be approximately $4.5 million. However, we are not able to determine the exact amount of our potential exposure with respect to the Fund, or other funds to which we contribute, because the amount of that exposure could be higher or lower than the estimate, depending on, among other things, the nature and timing of any triggering events and the funded status of the Fund, or other funds to which we contribute, at that time. If, in the future, we elect to withdraw from the Fund, or other funds to which we contribute, additional liabilities would need to be recorded. While it is possible that this would occur in the future, we have not made any decision to incur a partial or complete withdrawal from the Fund or other funds to which we contribute. If any of these adverse events were to occur in the future, it could result in a substantial withdrawal liability assessment that could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Risks Related to our Industry

We are subject to extensive governmental regulation, as well as federal, state and local laws affecting business in general, which may harm our business.

We are subject to a variety of regulations in New Jersey. In addition, regulatory authorities at the federal, state and local levels have broad powers with respect to the licensing of casino operations and may revoke, suspend, condition or limit our gaming or other licenses, impose substantial fines and take other actions, any one of which could have a significant adverse effect on our business, financial condition and results of operations. If additional gaming regulations are adopted in New Jersey, such regulations could impose restrictions or costs that could have a significant adverse effect on us. From time to time, various proposals are introduced in the legislatures that, if enacted, could adversely affect the tax, regulatory, operational or other aspects of the gaming industry and our Company.

Gambling

We are subject to extensive regulation under New Jersey gaming laws, rules and supervisory procedures. Casino gaming was approved by statewide referendum in 1976, with casinos restricted to Atlantic City. The legislative intent was to use gambling as a unique tool for urban revitalization of Atlantic City, and to generate revenue to establish new or expanded programs to benefit senior citizens and disabled residents. New Jersey's gaming regulations include the following:


•	Regulation: The state's gaming industry is overseen by the NJCCC and the NJDGE. The NJDGE has responsibility for overall regulation of the gaming industry and issues regulations, investigates and polices the industry. The NJCCC issues casino licenses and has responsibility for the licensure of casino key employees. The NJDGE also has jurisdiction over alcoholic beverage licenses at casinos.


•	Licensing Limits: There is no legislative limit on the number of licensees or machines permitted to be issued to one owner.


•	Infrastructure Requirements: Gaming was limited to hotels with a minimum of 500 rooms and casinos of at least 60,000 square feet. In January 2011, Governor Chris Christie signed legislation that permits developers to build smaller 20,000 square foot casinos at hotels with at least 200 rooms, which may further increase competition in the Atlantic City market.


•	Gaming: The state permits full-scale class III gaming including all table games and permits pari-mutuel simulcasting.


•	Facility Types: Casinos are limited to land-based properties in Atlantic City.

Regulation of Smoking

On January 15, 2006, the New Jersey legislature adopted laws that significantly restrict, or otherwise ban, smoking at our property. The current ordinance mandates that casinos restrict smoking to designated areas of no more than 25% of the casino floor. This, or any more restrictive smoking ban could materially impact our results of operations.

Regulation of Directors, Officers, Key Employees and Partners

Our directors, officers, key employees and joint venture partners must meet approval standards of certain state regulatory authorities. If state regulatory authorities were to find a person occupying any such position or a joint venture partner unsuitable, we would be required to sever our relationship with that person or the joint venture partner may be required to dispose of their interest in the joint venture. State regulatory agencies may conduct investigations into the conduct or associations of our directors, officers, key employees or joint venture partners to ensure compliance with applicable standards.

Certain public and private issuances of securities and other transactions that we are party to also require the approval of gaming authorities.

Regulations Affecting Businesses in General

In addition to gaming regulations, we are also subject to various federal, state and local laws and regulations affecting businesses in general. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, smoking, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted.

We operate in a highly taxed industry and may be subject to higher taxes in the future. If the New Jersey state legislature increases gaming taxes and fees, our results could be adversely affected.

Atlantic City casinos, including Borgata, currently pay a 9.25% effective tax rate on land-based gross gaming revenue and 17.5% effective tax rate for online gross gaming revenue, which includes a community investment alternative obligation equal to 1.25% of land-based gross gaming revenue and 2.5% of online gross gaming revenue, plus additional taxes and fees. We also pay property taxes, sales and use taxes, payroll taxes, franchise taxes, room taxes, parking fees, various license fees, investigative fees and our proportionate share of regulatory costs. Our profitability depends on generating enough revenues to pay gaming taxes and other largely variable expenses, such as payroll and marketing, as well as largely fixed expenses, such as property taxes and interest expense. We are treated as a partnership for federal income tax purposes and therefore federal income taxes are the responsibility of our members. Casino partnerships in New Jersey, however, are subject to state income taxes under the Casino Control Act. Therefore, we are required to record New Jersey state income taxes. We cannot assure that the State of New Jersey will not enact legislation that increases gaming tax rates.

Failure to maintain the integrity of our information technology systems, protect our internal information, or comply with applicable privacy and data security regulations could adversely affect us.

We rely extensively on our computer systems to process customer transactions, manage customer data, manage employee data and communicate with third-party vendors and other third parties, and we may also access the internet to use our computer systems. Our operations require that we collect and store customer data, including credit card numbers and other personal information, for various business purposes, including marketing and promotional purposes. We also collect and store personal information about our employees. Breaches of our security measures or information technology systems or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive personal information or confidential data about us, or our customers, or our employees including the potential loss or disclosure of such information as a result of hacking or other cyber-attack, computer virus, fraudulent use by customers, employees or employees of third party vendors, trickery or other forms of deception or unauthorized use, or due to system failure, could expose us, our customers, our employees or other individuals affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our casino or brand names and reputations or otherwise harm our business. We rely on proprietary and commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of customer information, such as payment card, employee information and other confidential or proprietary information. Our data security measures are reviewed and evaluated regularly, however they might not protect us against increasingly sophisticated and aggressive threats. The cost and operational consequences of implementing further data security measures could be significant.

Additionally, the collection of customer and employee personal information imposes various privacy compliance related obligations on our business and increases the risks associated with a breach or failure of the integrity of our information technology systems. The collection and use of personal information is governed by privacy laws and regulations enacted in the United States and other jurisdictions around the world. Privacy regulations continue to evolve and on occasion may be inconsistent from one jurisdiction to another. Compliance with applicable privacy laws and regulations may increase our operating costs and/or adversely impact our ability to market our products, properties and services to our customers. In addition, non-compliance with applicable privacy laws and regulations by us (or in some circumstances non-compliance by third party service providers engaged by us) may also result in damage of reputation, result in vulnerabilities that could be exploited to breach our systems and/or subject us to fines, payment of damages, lawsuits or restrictions on our use or transfer of personal information.

Risks Related to our Property

We own facilities that are located in areas that experience extreme weather conditions.

Extreme weather conditions may interrupt our operations, damage our property and reduce the number of customers who visit our facilities.

We have been forced to close due to hurricanes and other storms. Borgata was ordered to close from October 28, 2012 to November 2, 2012 by the NJDGE due to a post-tropical storm. In August 2011, Borgata was closed for three days due to Hurricane Irene. Moreover, Borgata is located in an area that has been identified by the director of the Federal Emergency Management Agency ("FEMA") as a special flood hazard area, which, according to the FEMA statistics, has a 1% chance of a flood equal to or exceeding the base flood elevation (a 100-year flood) in any given year.

While we maintain insurance coverage that may cover certain of the costs and loss of revenue that we incur as a result of some extreme weather conditions, our coverage is subject to deductibles and limits on maximum benefits. See above, "Terrorism and the uncertainty of military conflicts, natural disasters and contagious diseases, as well as other factors affecting discretionary consumer spending, may harm our operating results." There can be no assurance that we will be able to fully collect, if at all, on any claims resulting from extreme weather conditions. If our property is damaged or if operations are disrupted as a result of extreme weather in the future, our business, financial condition and results of operations could be materially adversely affected.

Our insurance coverage may not be adequate to cover all possible losses that our property could suffer. In addition, our insurance costs may increase and we may not be able to obtain similar insurance coverage in the future.

Although we have "all risk" property insurance coverage for our property, which covers damage caused by a peril (such as fire, natural disasters, acts of war, or terrorism), each policy has certain exclusions. In addition, our property insurance coverage is in an amount that may be significantly less than the expected replacement cost of rebuilding the entire facility if there was a total loss. We have all risk property damage insurance with a $1.0 million deductible and coverage up to $1.5 billion, flood damage insurance with a $10 million deductible and coverage up to $200 million and named windstorm insurance with a 5% deductible on total insured values, subject to a cap of $50 million, and coverage up to $200 million. In addition, we are self-insured up to $0.2 million with respect for each general liability claim and $0.2 million for each non-union employee medical claim. We accrued $11.6 million and $9.1 million for such claims at December 31, 2013 and December 31, 2012, respectively, and incurred expenses for such insurance claims of approximately $19.8 million, $18.5 million, and $18.6 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Borgata is located in an area that has been identified by the director of the Federal Emergency Management Agency ("FEMA") as a special flood hazard area. According to the FEMA statistics, this area has a 1% chance of a flood equal to or exceeding the base flood elevation (a 100-year flood) in any given year. Over a 30-year period, the risk of a 100-year flood in a special flood hazard area is 26%. We currently maintain $200 million of flood insurance coverage.

Our level of insurance coverage also may not be adequate to cover all losses in the event of a major casualty. In addition, certain casualty events, such as labor strikes, nuclear events, acts of war, loss of income due to cancellation of room reservations or conventions due to fear of terrorism, deterioration or corrosion, insect or animal damage and pollution, may not be covered at all under our policies. Therefore, certain acts could expose us to substantial uninsured losses.

In addition to the damage caused to our property by a casualty loss, we may suffer business disruption as a result of these events or be subject to claims by third parties that may be injured or harmed. While we carry business interruption insurance and general liability insurance, this insurance may not be adequate to cover all losses in any such event.

On September 23, 2007, The Water Club, then under construction, sustained a fire that caused damage to property with a carrying value of approximately $11.4 million. Our insurance policies included coverage for replacement costs related to property damage, with the exception of minor amounts principally related to insurance deductibles and certain other limitations. In addition, we had "delay-in-completion" insurance coverage for The Water Club for certain costs, subject to various limitations and deductibles. On August 10, 2009, we reached a final settlement of $40.0 million with our insurance carrier and recognized a gain of $28.7 million, representing the amount of insurance recovery in excess of the $11.3 million carrying value of assets damaged and destroyed by the fire (after our $0.1 million deductible). During the year ended December 31, 2012, we recognized a $7.7 million gain consisting of $3.9 million related to the subrogation of insurance claims related to the fire that occurred at The Water Club in 2007 and $3.8 million from business interruption proceeds due to the mandated closure of the property by civil authorities and the Division of Gaming Enforcement for three days in August 2011 related to Hurricane Irene.

We renew our insurance policies on an annual basis. The cost of coverage may become so high that we may need to further reduce our policy limits or agree to certain exclusions from our coverage. Our debt instruments and other material agreements require us to meet certain standards related to insurance coverage. Failure to satisfy these requirements could result in an event of default under these debt instruments or material agreements.

Our owned and leased real property are subject to land use and environmental regulations.

We are subject to land use regulations and future development is subject to possible restrictions. Future development may also be subject to coastal land use requirements in accordance with the Coastal Area Facility Review Act. We are also subject to certain environmental requirements. The property is constructed on the site of a former municipal landfill. Other historical operations at the site include a former incinerator, a dredge spoils area, facilities operated by the Atlantic City Department of Public Works (garage and maintenance shop, traffic signal building, police repair/body shop and tow lot) and a parking lot. The landfill was capped and the property remediated, resulting in the issuance of a conditional soils only no further action letter on December 3, 2009 by the New Jersey Department of Environmental Protection (the "NJDEP"). The property is subject to institutional controls including a Ground Water Classification Exception Area and Deed Notices that impose certain restrictions on the property. The property is also subject to engineering controls to maintain the landfill cap and operate storm water controls and a landfill gas venting, monitoring and alarm system. Biennial reports are required to certify that the institutional and engineering controls continue to be protective. If changes in future ground water data no longer support the NJDEP soils no further action conclusion, additional soil remediation and excavation could be required. The facility also generates limited amounts of common hazardous wastes that are subject to proper disposal requirements.

We may incur costs to comply with environmental requirements, such as those relating to discharges into the air, water and land, the handling and disposal of solid and hazardous waste and the cleanup of our property affected by hazardous substances. Under these and other environmental requirements we may be required to investigate and clean up hazardous or toxic substances or chemical releases at our property. As an owner or operator, we could also be held responsible to a governmental entity or third parties for property damage, personal injury and investigation and cleanup costs incurred by them in connection with any contamination. These laws typically impose cleanup responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants. The liability under those laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of the responsibility. The costs of investigation, remediation or removal of those substances may be substantial, and the presence of those substances, or the failure to remediate a property properly, may impair our ability to use our property.

We do not own or control the land underlying the ground leases MDDC has entered into with the landowners.

MDDC, as lessee, has entered into a series of ground leases for a total of approximately 20 acres of land that provide the land on which our public space expansion, rooms expansion, employee parking structure, and surface parking lot reside, as well as, an undeveloped parcel. Except for the surface parking lot ground lease, the term of each ground lease entered into expires on December 31, 2070. The surface parking lot ground lease is on a month-to-month term and may be terminated by either party effective on the last day of the month that is three months after notice is given. In addition, the surface parking lot ground lease will terminate on any termination of the Divestiture Trust, unless the NJCCC approves an extended term of such lease. Pursuant to the terms of MGM's settlement agreement with the NJDGE and the NJCCC, the Divestiture Trust maintains ownership of the land underlying the surface lot.

As a ground lessee, we have the right to use the leased land; however, we do not retain fee ownership in the underlying land. Accordingly, with respect to the leased land, we will have no interest in the land or improvements thereon at the expiration of the ground leases. Moreover, since we do not completely control the land underlying our property, our landlords could take certain actions to disrupt our rights in the land leased under the long term leases. While we do not think such interruption is likely, such events are beyond our control. If the entity owning the leased land chose to disrupt our use either permanently or for a significant period of time, then the value of our assets could be impaired and our business and operations could be adversely affected. Additionally, if we default on the terms of any of the long term ground leases, we may be liable for damages and could lose our leasehold interest in the applicable property or portion thereof and any improvement on the land. If any of these events were to occur, our business, results of operations and financial condition could be adversely affected.

In addition, we may lose 900 parking spaces available on the surface parking lot upon termination of the surface parking lot ground lease and the sale of the underlying land to a third party. In such event, MDDC has the option to build a parking garage, if necessary, to replace the lost parking spaces on the leased land underlying the ground lease for the undeveloped parcel. Our business and operations, however, could be disrupted if we are unable to replace the lost parking spaces in a timely manner to meet our parking demands and satisfy applicable zoning requirements.

Energy price increases may adversely affect our cost of operations and our revenues.

Our operations use significant amounts of electricity, natural gas and other forms of energy. While no shortages of energy or fuel have been experienced to date, substantial increases in energy and fuel prices in the United States have, and may continue to, negatively affect our results of operations. The extent of the impact is subject to the magnitude and duration of the energy and fuel price increases, of which the impact could be material. In addition, energy and gasoline price increases could result in a decline of disposable income of potential customers, an increase in the cost of travel and a corresponding decrease in visitation and spending at Borgata, which could have a significant adverse effect on our cost of operations and our revenues.

We have executory contracts with a wholly owned subsidiary of a local utility company with terms that extend until 2028. The utility company provides us with electricity and thermal energy (hot water and chilled water). Obligations under the thermal executory energy contract contain both fixed fees and variable fees based upon usage rates. The fixed fee components under the thermal executory energy contract were estimated at approximately $11.7 million per annum as of December 31, 2013. We are also obligated to purchase a certain portion of our electricity demand at essentially a fixed rate which is estimated at approximately $1.7 million per year. Electricity demand in excess of the commitment is subject to market rates based on our tariff class.

Risks Related to our Significant Indebtedness

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our debt obligations.

We have substantial indebtedness that could have important consequences, including:


•	making it more difficult for us to satisfy our obligations under our current indebtedness, which could in turn result in an event of default under our current indebtedness;


•	limiting, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds, among other things;


•	requiring us to sell assets to raise funds, if we are unable to borrow additional funds, for working capital, capital expenditures, acquisitions or other purposes;


•	increasing our vulnerability to general adverse economic and industry conditions;


•	requiring us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, which would reduce the availability of our cash flows to fund working capital, capital expenditures, expansion efforts and other general corporate purposes;


•	limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;


•	placing us at a disadvantage compared to our competitors that have less debt; and


•	limiting along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds.

Our debt instruments contain, and any future debt instruments likely will contain, a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:


•	incur additional indebtedness, including providing guarantees or credit support;


•	make restricted payments (including paying dividends on, redeeming, repurchasing or retiring our capital stock or the membership interests of MDDC);


•	make investments;


•	create, incur or suffer to exist liens;


•	sell assets;


•	enter into agreements restricting our subsidiaries' ability to pay dividends, make loans or transfer assets to us;


•	enter into sale and leaseback transactions;


•	engage in any new businesses;


•	engage in transactions with affiliates; and


•	consolidate, merge or sell all or substantially all of our assets.

Failure to comply with these covenants could result in an event of default, which, if not cured or waived, could have a significant adverse effect on our business, results of operations and financial condition.

The Credit Facility provides for the Revolving Credit Facility which matures in February 2018 (or earlier upon the occurrence or non-occurrence of certain events). The Credit Facility is guaranteed on a senior secured basis by MDDC and any future subsidiaries of MDDC and is secured by a first priority lien on substantially all of our assets, subject to certain exceptions. The obligations under the Credit Facility have priority in payment to our senior secured notes.

Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures and expansion efforts will depend upon our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

If availability does not exist under the Credit Facility, or we are not otherwise able to draw funds on the Credit Facility, additional financing may not be available to us, and if available, may not be on terms favorable to us.

We may be unable to refinance our indebtedness.

Our outstanding indebtedness includes the Credit Facility and the senior secured notes. The Credit Facility is guaranteed on a senior secured basis by MDDC and any future subsidiaries of MDDC and is secured by a first priority lien on substantially all of our assets, subject to certain exceptions. The obligations under the Credit Facility have priority in payment to our senior secured notes.

Our ability to refinance our indebtedness will depend on our ability to generate future cash flow. We are entirely dependent on the operations of Borgata, including The Water Club, for all of our cash flow. Our ability to generate cash in the future, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

It is unlikely that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us under the Credit Facility, in amounts sufficient to enable it to pay the principal on our indebtedness at maturity and to fund our other liquidity needs. We believe that we will need to refinance all or a portion of our indebtedness, at or before maturity, and cannot provide assurances that we will be able to repay or refinance any of our indebtedness on commercially reasonable terms, or at all. We may have to adopt one or more alternatives, such as reducing or delaying planned expenses and capital expenditures, selling assets, restructuring debt, or obtaining equity or debt financing or joint venture partners. These financing strategies may not be effected on satisfactory terms, if at all. In addition, New Jersey laws and regulations contain restrictions on the ability of companies engaged in the gaming business to undertake certain financing transactions. Such restrictions may prevent us from obtaining necessary capital.

Holders or beneficial owners of our senior secured notes may be required to dispose of, or we may be permitted to redeem, the senior secured notes pursuant to gaming laws.

A Gaming Authority may require that a holder of our senior secured notes be licensed, qualified or found suitable, or comply with any other requirement under applicable New Jersey gaming laws, rules, regulations and supervisory procedures to which we are subject (collectively, the "Gaming Laws"). Pursuant to the terms of the indenture governing the senior secured notes, holders of the notes agreed to comply with all Gaming Law requirements, including, if applicable, to apply for a license, qualification or a finding of suitability, within the required time period, as provided by the applicable Gaming Authority. We will not be responsible for any costs or expenses such holder may incur in connection with such holder's application for a license, qualification or a finding of suitability, or compliance with any other requirement of a Gaming Authority.

Under the Casino Control Act, a casino licensee must demonstrate by clear and convincing evidence the good character, honesty and integrity of all financial backers, including holders of the notes, which bear any relation to a casino project who hold 25% or more of such financial instruments or evidences of indebtedness; provided, however, in circumstances of default, any person holding 10% of such financial instruments or evidences of indebtedness shall be required to establish and maintain such qualification; and further provided, that the applicable Gaming Authority may in its discretion require qualification in any event at a lower threshold. Banking and other licensed lending institutions that make a loan or hold a mortgage or other lien acquired in the ordinary course of business are generally exempt from New Jersey's licensure and qualification requirement. The Gaming Laws also contain provisions that permit waiver if the holder of securities is an "institutional investor" as defined under the Gaming Laws and certain other conditions are met.

Prior approval of the transfer of publicly traded securities is generally not necessary. However, licensure, qualification, exemption or waiver of the purchaser as described herein may be necessary. There is no guarantee that the holders of the senior secured notes will be found exempt or will be waived from qualification. There is also no assurance that if qualification of a holder of the senior secured notes or its affiliates is required by a Gaming Authority, that the NJCCC will deem such holder or its affiliates qualified.

The Gaming Laws contain a provision for the placement of securities into an interim casino authorization trust with a trustee appointed by the Gaming Authorities during the time any security holder is being qualified.

In addition to the indebtedness under the senior secured notes and the Credit Facility, we may be able to incur substantially more indebtedness. This could exacerbate the risks associated with our substantial indebtedness.

We and our future subsidiaries may be able to incur substantially more debt in the future. Although the indenture governing the senior secured notes and the Credit Facility contain restrictions on our incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, indebtedness incurred in compliance with these restrictions could be substantial. The terms of the indenture permit us to incur additional indebtedness, including additional secured indebtedness. If we incur any additional indebtedness secured by liens on the collateral that rank equally with those securing the senior secured notes, the holders of that additional indebtedness will be entitled to share ratably with noteholders in any proceeds distributed in connection with any foreclosure, insolvency, liquidation, reorganization, dissolution or other similar proceedings.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on, or repay or refinance, our indebtedness, including the senior secured notes, and to fund planned capital expenditures, will depend largely upon our future operating performance. Our future performance, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

In particular, if adverse regional and national economic conditions persist, worsen, or fail to improve significantly, we could experience decreased revenues from our operations attributable to decreases in consumer spending levels and could fail to generate sufficient cash to fund our liquidity needs or fail to satisfy the financial and other restrictive covenants that we are subject to under our indebtedness. In addition, our ability to borrow funds in the future to make payments on our indebtedness will depend on the satisfaction of the covenants in the indenture, the Credit Facility and our other debt agreements, and other agreements we may enter into in the future. We cannot provide assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the Credit Facility or from other sources in an amount sufficient to enable us to pay our indebtedness, including the senior secured notes, or to fund our other liquidity needs.

In addition, we have pledged substantially all of our assets as collateral for our senior secured notes and the Credit Facility, and if the obligation to repay such debt is accelerated, for any reason, there can be no assurance that we will have sufficient assets to repay our indebtedness.

If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the senior secured notes.

If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal or premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. Any default under the agreements governing our indebtedness, including a default under the Credit Facility that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness, could render us unable to pay the principal or premium, if any, and interest on the senior secured notes and substantially decrease the market value of the senior secured notes.

The value of the collateral securing the senior secured notes may not be sufficient to satisfy all our obligations under the senior secured notes and it may be difficult to realize the value of the collateral.

Our obligation under the senior secured notes and the guarantees are secured by substantially all of our and each guarantor's property and assets. In the event of a foreclosure on the collateral (or a distribution in respect thereof in a bankruptcy or insolvency proceeding), the proceeds from the collateral securing the Credit Facility and the senior secured notes may not be sufficient to satisfy the senior secured notes because such proceeds would, under the inter-creditor agreement, first be applied to satisfy our priority payment obligations under the Credit Facility. Only after all of our priority payment obligations under the Credit Facility have been satisfied will proceeds from such collateral be applied to satisfy our obligations under the senior secured notes.

The value of the collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers for the collateral. By its nature, some or all of the collateral may be illiquid and may have no readily ascertainable market value. The value of the assets pledged as the collateral for the senior secured notes could be impaired in the future as a result of changing economic conditions, competition or other future trends. In the event of a foreclosure, liquidation, bankruptcy or similar proceeding, no assurance can be given that the proceeds from any sale or liquidation of the collateral securing our obligations under the Credit Facility and the senior secured notes will be sufficient to pay our obligations under the senior secured notes, in full or at all, after first satisfying our priority payment obligations in full and satisfying our obligations with respect to the senior secured notes and any non-priority payment obligations under the Credit Facility. There also can be no assurance that the collateral will be salable, and, even if salable, the timing of its liquidation would be uncertain. Accordingly, there may not be sufficient collateral to pay all or any of the amounts due on the senior secured notes. Any claim for the difference between the amount, if any, realized by holders of the senior secured notes from the sale of the collateral securing the senior secured notes and the obligations under the senior secured notes rank equally in right of payment with all of our other unsecured unsubordinated indebtedness and other obligations, including trade payables.

In addition, it may be difficult to realize the value of the collateral. With respect to some of the collateral, the collateral agent's security interest and ability to foreclose will be limited by the need to meet certain requirements, such as obtaining third-party consents and governmental approvals, complying with state law requirements and making additional filings. If we are unable to obtain these consents and approvals, comply with such requirements or make such filings, we may not be able to realize the value of the collateral subject to such security interests. We can provide no assurances that any such required consents or approvals can be obtained on a timely basis or at all. These requirements may limit the number of potential bidders for certain collateral in any foreclosure and may delay any sale, either of which events may have an adverse effect on the sale price of the collateral. Therefore, without the appropriate consents, approvals and filings, the practical value of realizing on the collateral may be limited.

In addition, our business requires numerous federal, state and local permits and licenses. Continued operation of Borgata depends on the maintenance of such permits and licenses. Our business may be adversely affected if we are unable to comply with existing regulations or requirements or changes in applicable regulations or requirements. In the event of foreclosure, the transfer of such permits and licenses may be prohibited or may require us to incur significant cost and expense. Further, we cannot assure that the applicable governmental authorities will consent to the transfer of all such permits. If the regulatory approvals required for such transfers are not obtained or are delayed, the foreclosure may be delayed, a temporary shutdown of operations may result and the value of the collateral may be significantly impaired.

Specifically, our gaming license is not included as part of the collateral and neither the collateral agent nor any holder of the senior secured notes is permitted to operate or manage any gaming business or assets, including gaming devices, unless such person has been licensed under applicable Gaming Laws for such purpose. In addition, Gaming Laws generally require that all persons who propose to own interests in licensed gaming operations be found suitable or qualified by the NJCCC. Consequently, the collateral agent and, in certain circumstances, holders of the senior secured notes would be required to file applications with the Gaming Authorities for qualification or a petition for waiver or exemption with the NJDGE, as well as to file a petition requesting approval to enforce a security interest in gaming assets before they take steps to enforce the security interest. Although the Gaming Laws permit interim qualification and the placement of the gaming assets into an interim casino authorization trust during the time an applicant is being fully qualified, these requirements may nonetheless limit the number of potential bidders who would participate in any foreclosure or bankruptcy sale and may delay the sale of the gaming assets that constitute a portion of the collateral, either of which could have an adverse effect on the amount of proceeds received from such sales. Further, in the event of a bankruptcy of the gaming licensee or a foreclosure on a lien by a person holding a security interest for which gaming devices are security in whole or in part for the lien, the Gaming Authorities may authorize the disposition of the gaming devices; however, such disposition may only be made in the manner approved by the Gaming Authorities.

The security interest of the collateral agent, for the benefit of the trustee under the indenture or the holders of the senior secured notes, is also subject to practical problems generally associated with the realization of security interests in collateral. Accordingly, the collateral agent may not have the ability to foreclose upon such assets, and the value of the collateral may significantly decrease.

The indenture governing the senior secured notes allows liens in favor of other secured creditors with priority over the liens securing the senior secured notes. There are also certain categories of property that are excluded from the collateral.

The indenture permits liens in favor of third parties to secure other obligations or additional debt, including purchase money indebtedness and capital lease obligations. In some cases, such liens could have priority over the liens granted to the collateral agent to secure the guarantees or the obligations under the senior secured notes. The scope of permitted liens and our ability to incur purchase money indebtedness and capital lease obligations are subject to certain limitations.

To the extent that liens permitted under the indenture encumber any of the collateral securing the senior secured notes and the guarantees, the other secured parties may have rights and remedies with respect to the collateral that could adversely affect the value of the collateral and the ability of the collateral agent, the trustee under the indenture or the holders of the senior secured notes to realize or foreclose on the collateral. Such liens and rights include, among other things, potential mechanics' liens that could be filed by suppliers, contractors or other parties in connection with our ongoing renovation projects at Borgata. Consequently, liquidating the collateral securing the senior secured notes may not result in proceeds in an amount sufficient to pay any amounts due under the senior secured notes after also satisfying the obligations to pay any creditors with superior liens and obligations under the payment priority contained in the Credit Facility. If the proceeds of any sale of the collateral are not sufficient to repay all amounts due on the senior secured notes, the holders of the senior secured notes (to the extent the senior secured notes are not repaid from the proceeds of the sale of the collateral) would have only an unsecured, unsubordinated claim against our and the guarantors' remaining assets.

Certain categories of assets are excluded from the collateral securing the senior secured notes and the guarantees. Excluded assets include (i) capital stock of any person, (ii) any right, title or interest of MDDC or any guarantor in any gaming license, (iii) certain non-assignable permits, licenses and contractual obligations, (iv) any real properties owned by us that are not material real properties and (v) any real properties leased by us that are not material leasehold interests. In addition, we will not be obligated to perfect the security interest in personal property other than deposit accounts with respect to which a lien cannot be perfected by the filing of a financing statement, up to an aggregate book value of $35 million at any time.

Rights of holders of senior secured notes in the collateral may be adversely affected by the failure to perfect liens on certain collateral acquired in the future.

Applicable law requires that certain property and rights acquired after the grant of a general security interest or lien can only be perfected at the time such property and rights are acquired and identified. There can be no assurance that the trustee or the collateral agent will monitor, or that we will inform the collateral agent or the trustee of, the future acquisition of property and rights that constitute collateral, and that the necessary action will be taken to properly perfect the lien on such after-acquired collateral. Neither the collateral agent nor the trustee for the holders of the senior secured notes has any obligation to monitor the acquisition of additional property or rights that constitute collateral or the perfection of any security interests therein. Such failure may result in the loss of the practical benefits of the liens thereon or of the priority of the liens on such property or assets.

Claims of creditors of subsidiaries which do not guarantee the senior secured notes are structurally senior and have priority over holders of the senior secured notes with respect to the assets and earnings of such subsidiaries.

While MDFC had no subsidiaries and MDDC had no subsidiaries other than MDFC at the time of issuance of the senior secured notes, subsidiaries we form or acquire in the future may not necessarily be guarantors under the indenture. All liabilities of such subsidiaries that do not guarantee the senior secured notes are effectively senior to the senior secured notes to the extent of the value of the assets of such non-guarantor subsidiaries.

Fraudulent conveyance laws may permit courts to void the guarantees of the senior secured notes in specific circumstances, which would interfere with the payment of the guarantees and realization upon collateral owned by the guarantors.

MDFC's issuance of the senior secured notes and the issuance of the guarantees by MDDC, and any of MDDC's future subsidiaries may be subject to review under federal and state fraudulent conveyance or similar laws. Under the federal bankruptcy laws and comparable provisions of state fraudulent transfer laws, any guarantee made by MDDC or any of MDDC's future subsidiaries could be voided, or claims under the guarantee made by MDDC or any of MDDC's future subsidiaries could be subordinated to all other obligations of MDDC or any such subsidiary, if MDDC or the subsidiary, at the time it incurred the obligations under any guarantee:


•	incurred the obligation with the intent to hinder, delay or defraud creditors;


•	received less than reasonably equivalent value in exchange for incurring those obligations; and was insolvent or rendered insolvent by reason of that incurrence;


•	was engaged in a business or transaction for which such person's remaining assets constituted unreasonably small capital; or


•	intended to incur, or believed that it would incur, debts beyond our ability to pay those debts as they mature.

A legal challenge to the obligations under any guarantee on fraudulent conveyance grounds could focus on any benefits received in exchange for the incurrence of those obligations. Because a portion of the proceeds from the offering of the senior secured notes were used to fund a dividend to the Joint Venture Partners, a court could conclude that the senior secured notes were issued for less than reasonably equivalent value. The obligations of each guarantor under its note guarantee contain a net worth limitation to reduce the risk that a note guarantee would constitute a fraudulent conveyance under applicable law.

The measures of insolvency for purposes of the fraudulent transfer laws vary depending on the law applied in the proceeding to determine whether a fraudulent transfer has occurred. Generally, however, an entity would be considered insolvent if:


•	the sum of its debts, including contingent liabilities, is greater than the fair salable value of all of its assets;


•	the present fair salable value of its assets is less than the amount that would be required to pay its probable liabilities on its existing debts, including contingent liabilities, as they become absolute and mature; or


•	it cannot pay its debts as they become due.

If a guarantee of the senior secured notes by MDDC or a future subsidiary were deemed void as a fraudulent transfer, holders of other indebtedness of, and trade creditors of, MDDC or that subsidiary would generally be entitled to payment of their claims from the assets of MDDC or the subsidiary that constitute a portion of the collateral before such assets could be made available for distribution to us to satisfy our own obligations, including the senior secured notes.

In the event of a bankruptcy, the ability of the holders of the senior secured notes to realize upon the collateral will be subject to certain bankruptcy law limitations.

In addition to limitations under the inter-creditor agreement, bankruptcy law could prevent the collateral agent from repossessing and disposing of, or otherwise exercising remedies in respect of, the collateral upon the occurrence of an event of default if a bankruptcy proceeding were to be commenced by or against us or the guarantors prior to the collateral agent having repossessed and disposed of, or otherwise exercised remedies in respect of, the collateral. Under the U.S. bankruptcy code, a secured creditor such as the collateral agent is prohibited from repossessing its security from a debtor in a bankruptcy case, or from disposing of security repossessed from such debtor, without bankruptcy court approval. Moreover, the bankruptcy code permits the debtor to continue to retain and to use collateral even though the debtor is in default under the applicable debt instrument; provided that the secured creditor is given "adequate protection." The meaning of the term "adequate protection" may vary according to the circumstances, but it is intended in general to protect the value of the secured creditor's interest in the collateral. The court may find "adequate protection" if the debtor pays cash or grants additional security, if and at such times as the court in its discretion determines, for any diminution in the value of the collateral during the pendency of the bankruptcy case. In view of the lack of a precise definition of the term "adequate protection" and the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments with respect to the senior secured notes could be delayed following commencement of a bankruptcy case, whether or when the collateral agent could repossess or dispose of the collateral or whether or to what extent holders would be compensated for any delay in payment or loss of value of the collateral through the requirement of "adequate protection."

Any future pledge of collateral might be voidable in bankruptcy.

Any future pledge of collateral in favor of the collateral agent, including pursuant to mortgages and other security documents delivered after the date of the indenture governing the senior secured notes, might be voidable by the pledgor (as debtor-in-possession) or by its trustee in bankruptcy if certain events or circumstances exist or occur, including, among others, if the pledgor is insolvent at the time of the pledge, the pledge permits the holders of the notes to receive a greater recovery than if the pledge had not been given and a bankruptcy proceeding in respect of the pledgor is commenced within 90 days following the pledge or, in certain circumstances, a longer period.

Risks Related to our Ownership

We are owned, indirectly, by the members of MDDHC, and their equity interests may conflict with our interests or the interests of our debt holders.

The members of MDDHC indirectly own 100% of MDDC's outstanding membership interests and will control all matters submitted for approval by MDDC's member. These matters could include the election of the members of MDFC's board of directors, amendments to our organizational documents, or the approval of any proxy contests, mergers, tender offers, sales of assets or other major corporate transactions. The interests of the members of MDDC may compete or otherwise conflict with our interests. For example, Boyd, as a diversified operator of 21 wholly-owned gaming entertainment properties, may from time to time develop or acquire and hold additional gaming businesses that compete directly or indirectly with us. Boyd may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us.

Moreover, the interests of the members of MDDC may not in all cases be aligned with the interests of a holder of the notes. For example, the members of MDDC could cause us to make acquisitions that increase the amount of the indebtedness that is secured or senior to the notes or sell revenue-generating assets, impairing our ability to make payments under the notes. Additionally, the members of MDDC own and operate businesses that compete directly or indirectly with us. Accordingly, the members of MDDC may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. In addition, the members of MDDC may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to holders of our notes.


Item 6.	Exhibits



Exhibit Number	Document of Exhibit	Method of Filing
10.1	Separation Agreement and Release, Dated September 19, 2014, by and between Paul J. Chakmak and Boyd Gaming Corporation.	Incorporated by reference to Exhibit 10.1 of Boyd Gaming Corporation's Quarterly Report on Form 10-Q filed on November 7, 2014

31.1	Certification of the principal executive officer of the Registrant pursuant to Exchange Act rule 13a-14(a).	Filed electronically herewith

31.2	Certification of the principal financial officer of the Registrant pursuant to Exchange Act rule 13a-14(a).	Filed electronically herewith

32.1	Certification of the principal executive officer of the Registrant pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. § 1350.	Filed electronically herewith

32.2	Certification of the principal financial officer of the Registrant pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. § 1350.	Filed electronically herewith

101	The following materials from Marina District Finance Company Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013, (iii) Condensed Consolidated Statement of Changes in Member Equity for the nine months ended September 30, 2014, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013, and (vi) Notes to Condensed Consolidated Financial Statements.	Filed electronically herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized, on November 13, 2014.



		MARINA DISTRICT FINANCE COMPANY, INC.

	By:	/s/ Keith E. Smith
		Keith E. Smith
		President and Director
		Principal Executive Officer

	By:	/s/ Josh Hirsberg
		Josh Hirsberg
		Vice President, Chief Financial Officer and Treasurer
		Principal Financial Officer and Principal Accounting Officer

Large accelerated filer

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