Atlantic City casino files for Chapter 11 bankruptcy protection

May 2013 | DEALFRONT | BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

Revel Entertainment Group, the owners of floundering casino Revel Atlantic City, filed for Chapter 11 bankruptcy in late March, less than a year after the casino opened for business. The group filed a bankruptcy plan which would turn control of the resort over to its lenders and eliminate almost $1bn of the company’s debts.

Revel, which opened its doors on 2 April 2012, has struggled to meet the expectations of its backers. According to data from the New Jersey Division of Gaming Enforcement, the $2.4bn resort generated the second lowest gambling revenue among the market’s 12 resorts in January 2013.

According to paperwork filed at a bankruptcy court in Camden, New Jersey, Revel listed debts of around $1.52bn and assets of $1.1bn. The company announced that under the terms of its bankruptcy it will reduce that debt by 82 percent to $272m via a debt-for-equity conversion. “Revel’s debt burden, in the context of numerous broader challenges facing the Atlantic City casino market and certain startup issues unique to Revel, has proven unsustainable”, the company said in the Chapter 11 paperwork. In a statement, Revel revealed that it had already secured more than the number of lenders’ votes required for the court to approve its plan.

Under the terms of the restructuring, the Revel Group will no longer own the casino, but a licensing agreement will be kept in place, allowing it to continue to operate under the Revel name. Jeffrey Hartmann was appointed Revel’s interim chief executive officer on 13 March and has been charged with the day-to-day running of the company as it completes the reorganisation process.“The reduction of debt service expense this agreement facilitates will greatly improve Revel’s cash flow to better support day-to-day operations,” noted Michael Garrity, Revel’s chief investment officer. “This restructuring positions Revel for long-term success by providing the company with the operational flexibility to invest in the growth of our business.”

In addition to the debt-for-equity deal, lenders including Canyon Capital Advisors and Chatham Asset Management have also agreed to provide $250m in debtor in possession (DIP) financing, approximately $45m of which constitutes new money commitments and approximately $205m constitutes prepetition debt. Lenders have also committed around $335m in exit financing, consisting of a $75m revolving loan and a $260m term loan.

Revel, which employs around 5500 staff, reported operating losses of $35m and $37m respectively in the second and third quarters of 2012. The group also raised $200m of extra financing in an unsuccessful attempt to shore up its finances. “Today’s announcement is a positive step for Revel,” said Kevin DeSanctis, Revel’s chief executive officer. “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.”

The Revel casino was the first constructed in Atlantic City since 2003, and was also the most expensive ever built in the city, but it has fallen foul of the region’s gambling decline. Atlantic City’s casinos have struggled in the face of competition from new rival gambling destinations, most notably in nearby Philadelphia. On the back of Philadelphia’s success, Pennsylvania has overtaken Atlantic City to become the second-largest US gambling market outside of Las Vegas. In order to revive the state’s gambling fortunes, New Jersey Governor Chris Christie even provided the Revel resort with $261m worth of state tax incentives, to no avail.

A number of mistakes have punctuated the casino’s short history thus far. Revel’s decision to make the resort a completely non-smoking area has been highlighted as a particularly damaging mis-step, one which has been corrected in the company’s restructuring plan. Revel also failed to connect with day trippers to the region, due to the prohibitively high cost of a room in the casino’s 1800 bedroom hotel and the expensive nature of the casino’s restaurants. In addition, Revel was forced to close its doors for five days in October and November due to the effects of Hurricane Sandy.

Revel expects to continue normal business operations throughout the bankruptcy process. Thanks to the DIP financing, employees and suppliers will continue to be paid.

Richard Summerfield