Bloomberg News

Christie-Backed Revel Atlantic City Plans Bankruptcy

February 20, 2013

New Jersey Governor Chris Christie said investors are showing confidence in Atlantic City as Revel AC Inc. (0597450D:US) plans to file for a prepackaged bankruptcy that will reduce its debt burden by more than $1 billion.

Certain Revel lenders will provide about $250 million in debtor-in-possession financing, including $45 million of new loans, the company said yesterday in a statement. No taxpayer money will be used to finance the restructuring, Revel said.

Revel, Atlantic City’s first new casino since 2003, opened in April at a cost of $2.6 billion with the aid of Christie, who helped restart the project after Morgan Stanley abandoned construction. An attempt to bring higher-end customers to the seaside city, Revel has struggled to attract business, suffering an added setback when Hurricane Sandy forced its closure for five days starting Oct. 28. New Jersey, faced with regional competition, saw its total gambling revenue fall 8 percent to $3 billion in 2012, the sixth year of declines.

“What’s happening here is merely a shifting of debt load to equity,” Christie, a Republican, told reporters today in Little Ferry, New Jersey. “So these people were owed debt and now they’re taking ownership in the hotel. They’re showing their faith and confidence in the concept and in the future of Atlantic City by not walking away and closing the place down, but by saying, ‘We’re going to take the money we’re owed, and instead we’ll take stock in the company.’”

Five Years

Christie said he had given Atlantic City five years to turn around.

“We’re about two-and-a-half years into that, so give me another two-and-a-half years,” he said. “You can call it a failure at the end of five if that’s where it turns out, if that’s where we wind up being. But I’m not ready to give up yet.”

Revel had the second-lowest gambling revenue among the market’s 12 resorts in January, according to New Jersey Division of Gaming Enforcement data compiled by Bloomberg Industries analysts.

The company’s $900 million term loan due in 2017 was little changed today at 38.2 cents on the dollar, according to prices compiled by Bloomberg. The debt was arranged by JPMorgan Chase & Co. in February 2011.

“We’ve been saying for a long time there are some problems with this company,” Ben Begleiter, a research analyst at Unite Here, a labor union representing workers in industries such as hotel, gaming and food service, said in a telephone interview. “Our hope is that they use this as an opportunity to take a look from top to bottom and make changes that are good for the company, the workers and Atlantic City.”

Tax Incentives

The state’s Economic Development Authority granted $261 million in tax incentives to help jump start stalled construction of the project in February 2011. Christie signed legislation at the Revel construction site that created a state tourism district in the city, boosted marketing of the resorts and eased regulations on casino operators.

“My vision for Atlantic City is that Atlantic City needs to become Las Vegas East,” the governor said in a January 2011 interview with Bloomberg News.

Christie stepped in after Morgan Stanley walked away from the beachfront project in 2010, halting funding on what was conceived as the city’s biggest resort and writing off most of its $1.2 billion investment.

Non-Gaming Strategy

Pennsylvania’s gaming revenue has surged since Revel was first conceived, siphoning off customers, and the company “got a bad break” from Hurricane Sandy, which came when Revel was still trying to build up its customer base, according to David Schwartz, director of the Center for Gaming Research at the University of Nevada Las Vegas.

Revel’s focus on non-gaming amenities such as restaurants and shows is still a viable strategy, he said.

“It’s going to help them get out from under that debt load and hopefully into a place that’s financially sustainable,” Schwartz said.

Lenders that include Canyon Capital Advisors LLC, Capital Research & Management Co. and Chatham Asset Management LLC will own most of the equity once Revel emerges from bankruptcy protection, the Wall Street Journal reported, citing people familiar with the matter.

Ratings Cut

Moody’s Investors Service earlier this month cut its rating on the casino to Caa3, two levels above default. Losses at Revel before interest, taxes, depreciation and amortization for the nine months ended Sept. 30 were $69 million, according to Moody’s.

Standard & Poor’s last month lowered its rating on Revel’s loan to CC and cut its recovery rating to ‘6’ indicating negligible recovery for lenders in the event of default. S&P has a CCC grade on the company.

“The agreement we have reached with our lenders will ensure that the hundreds of thousands of guests who visit Revel every year will continue to enjoy a signature Revel experience in our world-class facility,” Chief Executive Officer Kevin DeSanctis said in the statement.

Revel’s management team will remain in place, according to a person with knowledge of the deal who wasn’t authorized to speak publicly.

The company had about $1.3 billion of debt and capacity to draw approximately $57.7 million of additional funds under its credit line on Sept. 28, it said in an Oct. 1 filing.

Poverty, Crime

Atlantic City (12855MF:US) was a bustling beach resort until the 1960s, when it became riddled with poverty, crime and corruption. The state approved casino gambling in 1976 and limited it to the city to boost its ailing finances.

The first casino, Resorts International, opened in 1978. Gambling revenue rose every year until 2007, when the 18-month recession began.

The city’s casinos have a history of debt troubles. Donald Trump’s Taj Mahal declared bankruptcy in 1990. Trump Hotels & Casino Resorts Inc. then filed for bankruptcy protection in 2004. The Tropicana filed for bankruptcy in May 2008 with $2.4 billion of debt. The Atlantic City Hilton missed an interest payment and other funding requirements on July 9, defaulting on a $348.2 million loan.

Revel’s legal adviser in the restructuring is Kirkland & Ellis LLP. Alvarez & Marsal is financial adviser and Moelis & Co. is its investment bank.

The inspiration for Revel was described by Chief Investment Officer Michael Garrity at the company’s casino licensing hearing in March 2012.

“I’ve spent a lot of years on Wall Street,” Garrity said then. “And what’s always amazed me, the thousands of traders, analysts, private equity guys, bankers that will jump on a plane, fly four to five hours to Vegas, lose the day on the way back. Because they’re gamblers? No. Because they want to have fun. And that was really the premise behind Revel.”

To contact the reporters on this story: Alan Goldstein in New York at agoldstein5@bloomberg.net; Faris Khan in New York at fkhan33@bloomberg.net; Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net; Faris Khan at fkhan33@bloomberg.net


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