Atlantic City – Resorts Atlantic City, the fading grande dame of Boardwalk casinos, has defaulted on its mortgage and is facing foreclosure by its chief lender.
Column Financial Inc., a commercial mortgage subsidiary of investment bank Credit Suisse, wants Resorts‘ owner to voluntarily surrender title to the casino because it has fallen behind in payments on a USD 360 million loan.
If Resorts refuses, Column intends to start foreclosure proceedings in New Jersey Superior Court to take over the casino, the company said in papers filed Thursday with the state Casino Control Commission.
Column is seeking the commission’s approval to order Resorts to resume making mortgage payments. Another option is to conduct „cash sweeps“ at Resorts for the money to pay off the debt.
Resorts spokesman Alan C. Marcus said the casino will remain open as usual and its operations will not be interrupted.
„This is a dispute between Resorts and a lender,“ Marcus said. „There’s not a threat to Resorts‘ customers and employees.“
Duncan King, a spokesman for Column and Credit Suisse, declined to comment. If it forecloses on the property, Column likely would keep the casino open while searching for a new company to manage or own it, analysts said.
Resorts, Atlantic City’s first casino, is owned by an affiliate of Colony Capital LLC, a privately held Los Angeles real estate investment firm that bought the gaming hall in 2001 for USD 140 million.
Resorts disclosed in a regulatory filing in November that it missed making a monthly interest payment on the Column loan „due to the extreme impact of the current economic conditions.“ At that time, Resorts said it was negotiating with Column in an attempt to work out a deal.
Analysts have predicted that Resorts‘ weak financial performance and heavy debt load likely will force the casino into bankruptcy unless parent Colony Capital gives it a cash infusion.
Resorts‘ balance sheet revealed a net loss of USD 22.2 million through the first three quarters of 2008. The company burned through USD 17 million in cash heading into the close of the year, magnifying its financial difficulties.
Financial statements indicate the casino’s cash flow simply is too little to meet the interest payments on the USD 360 million of debt. Its debt load is about six times the average rate of the large casino companies, analysts say.
For 2008, Resorts had gross gaming revenue of USD 233.2 million, down 16.3 percent from the previous year and the second-lowest among Atlantic City’s 11 casino hotels. Only Trump Marina Hotel Casino raked in less revenue.
Resorts and its sister property, the Atlantic City Hilton Casino Resort, were the worst financial performers last year. The Hilton, also owned by an affiliate of Colony Capital, saw its gross gaming revenue plunge 18.3 percent to USD 249.1 million. Through the first nine months of 2008, Resorts‘ gross operating profits sank 60.5 percent, while the Hilton’s were off 59.8 percent.
Column Financial’s action against Resorts does not involve the Hilton. Marcus, the casino spokesman, said Resorts and Hilton’s ownership structure puts them under „a separate transaction,“ so the Column dispute will not spread to the Hilton.
„If I had to compare it to something, Tropicana and Trump continue to operate and Resorts continues to operate,“ Marcus said.
Tropicana Casino and Resort, stripped of its license in December 2007 after mass layoffs and regulatory violations, is under the control of a state-appointed conservator and headed for a bankruptcy auction to find a new owner.
Trump Entertainment Resorts Inc., operator of Donald Trump’s three casinos, missed making a USD 53.1 million interest payment on Dec. 1 and is in negotiations with lenders to try to restructure USD 1.25 billion of corporate debt.
The faltering economy and Atlantic City’s casino slump have combined to put intense pressure on the entire gaming industry. Analysts say Resorts, Hilton, Tropicana and the Trump casinos all may land in bankruptcy.
Marcus said Resorts and the Hilton are in no danger of closing.
„Despite all these rumors going back over a number of months about properties closing, I’ve never heard of any of that internally,“ he said.
Resorts transformed Atlantic City into a casino town when it opened on May 26, 1978, under then-owner Resorts International Inc. However, the company fell into turmoil when former chairman James Crosby died in 1986.
Donald Trump agreed to buy a controlling interest in Resorts in 1987. Entertainer Merv Griffin mounted a hostile takeover attempt. In 1988 they agreed to split the company, with Trump getting the Trump Taj Mahal Casino Resort and Griffin getting Resorts.
Resorts‘ parent company filed for bankruptcy in 1989 and 1994 under Griffin’s watch. Sun International Hotels Ltd. bought Resorts from Griffin in 1996 for USD 301 million. Sun took a heavy loss when it unloaded the casino for USD 140 million to Colony Capital five years later.
Colony updated the aging property in the summer of 2004 by opening a new USD 125 million, 400-room hotel tower.