If it seems like it hasn't been even a year since the latest Atlantic City casino, this one with the surreal ads showcasing Revel Atlantic City, opened up, it is because that is exactly the case. Ten months to be precise. And just as quickly as it came, just as quickly did it file for bankruptcy. Moments ago, the company issued a press release that it would engage in a debt-for-equity prepack (with Moelis, K&E and A&M all advising) Chapter 11 which will be completed over the summer. The biggest losers here are not so much the original owners of Revel Entertainment Group, Morgan Stanley which three years ago decided to walk away from its entire $932 million sunk investment in the bankrupt hotel (instead of spending another billion to complete it), but the people of New Jersey, who just lost another investment opportunity as some $260 million in the tax incentives that were supposed to help the project along will never reach their intended target. From the WSJ:
[Revel] received a boost from the state of New Jersey, which over 20 years will send back $261 million in taxes from the project under an economic-redevelopment initiative. Most of that money will be used by Revel to spruce up the scruffy neighborhood and boardwalk around the casino. About $70 million will go into an account that can be used to pay initial interest on the mezzanine loan if the project doesn't meet projections.
The $70 million piece was a key late addition that helped secure the mezzanine funding, according to people involved in the financing process.
The other losers here are the unnamed debt holders who in February 2011 also injected $850 billion in first-lien and $305 million mezz loans which would eventually become 85% of the equity - the CEO of the firm refused to discuss whose these investors were, referring to them only as a “consortium of institutional investors.” JPMorgan acted as advisor for Revel in connection with the debt raise. Nearly a year later, JP Morgan advised lenders to sink another $150 million in good money after bad: "The casino resort said it amended its agreement with JP Morgan Chase Bank to provide for additional money to help pay down existing debt and to fund operations. Most of it consists of a new $125 million loan."
The continuation of the abandoned investment was the brainchild, and pride and glory of one Chris Christie who then said "the $2.4 billion Revel is one of the most spectacular resorts he's ever seen and expects it will motivate other Atlantic City casinos to revitalize their properties. "I think that one of the things that Revel will be is a catalyst for additional modernization and investment by the other casinos to say, listen, if we grow more people here coming to the region and we're offering something that looks nice further down the boardwalk, maybe people will want to look there as well." As it now stands, the Revel will only be a catalyst for further bankruptcies as industry after industry finds out what a tapped out consumer with no access to $1.8 trillion in excess reserves truly means.
The other losers are the usual suspects: unions.
While construction unions have been backers of the project, the hospitality-workers union and conservative groups have criticized the state help. Unite Here, which represents workers at Atlantic City's casinos, has complained that the project could force older casinos to close, which would mean more laid-off workers.
Mr. DeSanctis on Thursday said the project hoped to instead expand the market by appealing to business groups and leisure travelers who aren't visiting Atlantic City these days.
So much for that. As for the fresh start capital structure, the lenders will roll some $205 million in pre-petition debt into a DIP, and provide a fresh $45 million in new capital, as yet another batch of good money is thrown after bad money that once was good money also thrown after bad, and so on.
As part of the restructuring, certain of Revel`s lenders will provide approximately $250 million in debtor-in-possession financing (DIP), approximately $45 million of which constitutes new money commitments and approximately $205 million of which constitutes prepetition debt.
But the funniest part from the pre-packaged bankruptcy press release is the following line:
No tax payer funds will be used to finance the restructuring.
Ladies and gentlemen: we have just found the first insolvent Wall Street casino (literally) that did not get a taxpayer bailout.
And now: the surreal Revel ad as promised.