Atlantic City – How much is the Tropicana Casino and Resort really worth? It may take a bankruptcy auction to find that out.
Normally, bankruptcy carries the stigma of failure. Not so in the casino industry. It has been used with success by gaming operators in the past, and now it appears Tropicana is heading in that direction to complete the casino’s tortuously slow sale.
Gary S. Stein, the conservator overseeing the sale, says a bankruptcy auction is the best way to pump up bids and overcome a host of legal and financial entanglements that have hindered efforts to find a buyer.
„Bankruptcy usually has a bad connotation. In this case, it’s not for somebody in distress. It’s for somebody who can benefit from the process,“ Stein said, referring to the Tropicana.
Stein is seeking New Jersey Casino Control Commission permission to scrap the existing bids for Tropicana and extend the sale for an additional 120 days beyond Monday’s deadline. His plan calls for lining up approval from Tropicana’s creditors, bondholders and former owner to take the casino on a quick trip through bankruptcy court under what is known as a Section 363 sale.
„It’s really in and out. Just 60 days,“ Stein estimated of the time to complete the sale in bankruptcy court.
Stein, however, has been wrong in his estimates so far. When Tropicana’s sale started in December, he originally thought he would have a buyer by April. When it became clear that deadline wouldn’t be met, the commission extended the sale 120 days to June 9. Now with a sale nowhere in sight, Stein wants another 120 days.
Delays are making the commission antsy. At their board meeting Wednesday, the commissioners said they would hold off making a decision on Stein’s request until June 18. Their comments underscored their frustration and impatience.
„I thought this would all be over with by March or April,“ Commissioner Ralph G. Frulio said.
„If, at the end of the day, we extend this another 120 days and you’re not able to get your maximum price, then where are we?“ Commissioner Michael C. Epps asked of Stein.
The longer the sale takes, the more that is being spent for consulting fees for lawyers and financial experts – now at USD 1.8 million and climbing. Documents show that on Wednesday alone, the commission approved nearly USD 790,000 in bills from the New York law firm of Debevoise & Plimpton, Stein’s legal adviser.
Tropicana was put up for sale after its former owner, Columbia Sussex Corp. and its affiliates, were denied a new gaming license in December following a 12-month reign of declining revenue, regulatory violations and customer complaints of unsanitary conditions.
Analysts originally estimated Tropicana could fetch USD 1 billion or more. Without divulging the amounts, Stein said bids received so far have been „unreasonably low.“ He blamed the weak economy, the global credit crisis and a bankruptcy filing in May by Columbia Sussex affiliate Tropicana Entertainment LLC.
Tropicana Entertainment’s bankruptcy does not include Tropicana Atlantic City. Instead, it covers nine of the company’s casinos in Nevada, Mississippi, Indiana and Louisiana.
Complicating matters, though, are the ownership rights of Tropicana Entertainment and its subsidiaries. They include ownership of Tropicana Atlantic City’s parking garage and the land beneath two of the casino’s hotel towers.
One bankruptcy attorney who represents potential bidders for Tropicana argued that Stein’s proposed Section 363 bankruptcy sale would be the easiest way to clear up any uncertainty over the ownership rights and sell all of the assets as „a whole bundle.“
„It’s a perfect fit for Tropicana,“ said Michael J. Viscount Jr., of the Atlantic City law firm Fox Rothschild. „The sale allows the property to be transferred to the new owner free and clear of other claims.“
Boston bankruptcy attorney Daniel M. Glosband, who is not involved in the Tropicana case, said there are potential pitfalls with a Section 363 sale, but overall such an auction is attractive to buyers.
„This is a nice, neat way to run a sale because you can basically scrape off all of the problems,“ Glosband said.
A Section 363 sale looks much like a traditional auction. It includes an initial bidder, known colloquially as a „stalking horse,“ Glosband explained. The stalking horse essentially is given the inside track on a sale, but is supposed to generate interest among other potential buyers to drive up the bids.
The stalking horse isn’t always the successful buyer, as was the case with Donald Trump when he played that role in the 2005 bankruptcy auction of the former Trump World’s Fair property that was once part of Trump Plaza Hotel and Casino.
Trump lost the World’s Fair property in a bankruptcy battle with his casino company’s shareholders, but then tried to buy it back when the bankruptcy court auctioned it off. The winning bidder, developer Bruce E. Toll, proposed building luxury condominiums, but the site remains vacant.