The current financial crisis and credit crunch has taken its toll on the biggest leveraged buyout (that could have been) this year. Fortress Investment Group LLC and Centerbridge Partners LP scrapped their $6.1 billion takeover of racetrack and casino owner Penn National Gaming Inc. as the credit market collapsed and gambling revenue slowed.

However, Penn came back from the negotiations not entirely empty-handed. It will get $225 million in cash as a termination fee, plus $1.25 billion in what amounts to no-cost capital or interest-free loan until 2015. The company said its board was unwilling to negotiate a reduced buyout price and that the settlement was preferable to suing the buyers to force the acquisition.

Penn is the largest leveraged buyout agreement to fall apart since J.C. Flowers & Co. backed out of an accord last year to purchase SLM Corp., also known as Sallie Mae, for $25.3 billion.

More than 60 buyouts announced last year, valued at a combined $174 billion, have been abandoned. Financing disputes have delayed or threatened to derail takeover agreements for Clear Channel Communications Inc., BCE Inc. and Huntsman Corp.

Although Penn still made quite a bit of money with the settlement, the management's disappointment at the failed buyout was palpable. "This is not the result we expected," said Penn National Gaming CEO Peter Carlino. "If we had seen a clear and certain path in getting to closing, we would have taken it."

Fortress and Centerbridge agreed a year ago to buy Penn for $67 a share. Penn, which owns 19 casinos and racetracks, was trading 57 per cent below that yesterday as investors remained skeptical the deal would go through after borrowing costs doubled and the U.S. economy slowed.

On Thursday, Penn closed at $29.66, up $1.06, or nearly 3.7 per cent, amid heavy volume. The stock had closed as high as $63.29 last June following the announcement of the deal.

Consumers have limited spending amid the worst US housing slump since the Great Depression, mounting unemployment and higher costs for food and gasoline. Las Vegas Strip casino revenue fell for the fourth straight month in April, the Nevada Gaming Control Board said on 11 June. Atlantic City gambling revenue fell 5 per cent this year through May.

The takeover also was bogged down by the state regulatory approval process. Analysts had doubts about the deal's close, saying banks appeared to be reconsidering funding commitments amid significant write-downs in the financial sector.

Of the $1.475 billion total due to Penn National, $700 million was being paid Thursday. The rest will arrive by July 18 after the issuance of preferred shares. If the stock purchase deal falls apart, Penn National can keep the $700 million without issuing any preferred shares.

If the stock deal goes through, Penn National will sell preferred shares substantially to Fortress and Centerbridge, with $45 million to Deutsche Bank and Wachovia, which initially planned to invest in the company after the acquisition.

The gaming operator will not pay a dividend on the preferred shares, unless the company starts paying dividends to all shareholders. The preferred shares don't have voting rights and are less senior than all debt, but above common shares.

In June 2015, Penn National can buy back the preferred stock in cash, common stock or a combination of the two based on a stock price range of $45 to $67 per share. Danna said the repayment could be potentially steep for Penn National if its shares are below $45 since it's on the hook to repay at least that rate.

The company will use the cash to pay down debt, buy or develop gaming facilities or repurchase its common stock.

The $225 million termination payment is more than Penn's annual profit every year other than 2006, when the company earned $327 million. The payment is worth about $2.59 a Penn share.