Lenders to foreclose on two Tunica casinos
Published: November 16,2011
TUNICA — ACH, the Atlantic City casino long considered to be at the greatest risk of having to close, can breathe a bit easier.
New Jersey casino regulators today approved a plan to keep the struggling casino open and save the jobs of nearly 2,000 workers.
“The company, quite frankly, was running out of cash,” said Eric Matejevich, chief financial officer of RIH, the casino’s parent company.
The state Casino Control Commission approved a plan for the casino’s owner, Los Angeles-based Colony Capital, to pump $15 million into it to keep it afloat. In return, lenders will foreclose on and take ownership of two casinos in Mississippi that Colony owns, Bally’s Tunica and Resorts Tunica, and will wipe out the mortgage debt for ACH.
The casino had been known as the Atlantic City Hilton until the hotel giant ended a licensing deal over the summer.
The deal also calls for an additional infusion of $9.3 million in cash for the casino when lenders release insurance proceeds from an August 2009 flooding claim.
All told, the deal will pump at least $24.3 million in new funds into the casino, which has been on life support for more than two years amid a fruitless effort to find a buyer.
“This gives us a clear path to reinvest in our core product,” said Michael Frawley, the casino’s chief operating officer. “We’ve kind of been at a standstill. This gives us an opportunity to reinvest and become competitive in this market, which we haven’t been for some time.”
He said ACH will eliminate jobs but would not say how many. The casino also will reduce the amount of slot machines and table games it offers.
“We’re not going to save our way out of this,” Frawley told the commission. “Labor is a significant focus of where we’re going to go.”
In September, the New Jersey Division of Gaming Enforcement wrote a report to the casino commission expressing concern over ACH’s financial stability. The casino posted a gross operating loss of nearly $11 million in the first six months of this year, and its monthly casino revenue continues to plunge.
In October, it took in $10.7 million, a decrease of 15.6 percent from October 2011. For the first 10 months of this year, ACH has taken in $125.5 million, down 12 percent from the same period last year, and ahead of only the Golden Nugget Atlantic City.
Hilton Hotels & Resorts ended a franchise agreement in July that gave the casino the right to use the Hilton name. The Hilton logos will come off the building by the end of the year, and it might be renamed something other than ACH, the casino said.
According to financial documents filed with the state at the end of June, ACH had owed at least $414.6 million to its lenders, including U.S. Bank National Association and J.P. Morgan Chase Bank.
Colony borrowed money in October 2006 for its two Mississippi casinos, secured in part by the Atlantic City casino. The lenders will foreclose and become the new owners of those two Mississippi casinos.
Colony bought the Hilton for $513 million in 2005 as part of a $1.24 billion deal that netted them four casinos in New Jersey, Mississippi and Indiana. That, it turns out, was near the height of the market, which came in 2006.
Late that year, the first of what would ultimately become 10 casinos in neighboring Pennsylvania opened and began siphoning Atlantic City’s customers. Atlantic City’s casino revenue peaked in 2006 at $5.2 billion; it has since fallen to $3.6 billion at the end of 2010.
The sale price of Atlantic City casinos has plummeted as well. When the Tropicana Casino and Resort was stripped of its license in December 2007 because of the poor performance of its owners at the time, a state-appointed conservator expected to sell it for just under $1 billion. Instead, it was swapped in bankruptcy court for $200 million of deeply discounted debt, which investor Carl Icahn amassed for pennies on the dollar.
Resorts Casino Hotel, which also was owned by Colony Capital, was sold in December to Dennis Gomes, a veteran casino executive, and New York real estate mogul Morris Bailey for $31.5 million — far less than the $140 million Colony paid for it fewer than 10 years earlier. And in May, Trump Marina, now the Golden Nugget, went for just over 10 percent of the $316 million it nearly sold for in 2008.
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