Atlantic City’s bright hope enters bankruptcy
The iconoclastic super-resort that was going to shatter convention as it revived Atlantic City’s sagging fortunes has filed for protection from its creditors under Chapter 11 of the US Bankruptcy Code.
A majority of the lenders behind the US$2.4 billion Revel have already agreed to the so-called pre-packaged bankruptcy, which will allow the giant casino and hotel to reorganize its finances so it can be profitable.
The property, which now says it’s worth no more than $450 million, is expected to emerge from the shelter of federal Bankruptcy Court his summer with 82% of its $1.5 billion in debt converted into equity and a further cash infusion of $250 million from its creditors in the form of debtor-inpossession financing, of which about $42 million will be new money.
Lenders also have committed $335 million in so-called exit financing in the form of a $75 million revolving line of credit and a $260 million term loan. This money will provide Revel with additional working capital, pay for some capital expenditures, repay the debtor-in-possession financing and pay expenses related to the restructuring.
The property was in trouble from the start, the brainchild of investment bankers eager to cash in on the soaring property prices and consumer spending boom that were driving the US economy before the big crash in 2008. Bad timing saw the resort launch construction just before the bubble burst, at which point it was too far along to scrap—as happened in several high-profile instances on the Las Vegas Strip—and just when the full scale of Atlantic City’s problems in competing with casino expansion in neighboring states was becoming fully apparent.
When the economy tanked and the banks exited, Revel ran out of money to complete construction and had to be bailed out by massive tax breaks from the state of New Jersey to get the doors open. When they did finally open last spring, the strategy—upscale, pricey, non-smoking, focused on marketing non-gaming amenities to a non-existent leisure and business clientele—proved all wrong for an ailing, no-growth market that is, and always has been, a low-roller, day-trip slot market.
In 2012, Atlantic City’s struggling casino market saw gross operating profits fall by more than 27% year on year. The weeklong closures forced by Hurricane Sandy in late October and early November were a factor in driving down the results, which also had the effect of offsetting a 3% increase in nongambling revenues.
Atlantic City’s 12 casinos, which still comprise the third-largest US market in terms of revenue, collectively posted US$360 million in gross operating profits. Eight recorded profits, led by Harrah’s Resort Atlantic City with nearly $127 million and The Borgata with just under $120 million.
Meanwhile, Revel, which is in reorganization in US Bankruptcy Court, lost $110 million from its opening in April through the end of the year.
Experts point out that Revel is also hurt by being a stand-alone property unaffiliated with a larger parent company with an extensive multistate data base of customers from which to draw.
In the end, despite its size—1,400 hotel rooms, 2,400 slot machines, 130 table games—its varied amenities and the obvious newness factor, it has consistently lagged near the bottom of the city’s 12 casinos in terms of gambling revenue.
Revel is hurt by being a stand- alone property unaffiliated with a larger parent company.