It feels like it was only yesterday when we wrote about the plight of what was once supposed to be the ultramodern east-coast competitor to the glitzy kitsch of Las Vegas: Atlantic City's Revel casino which back in February 2013 "filed for bankruptcy ten months after opening." Well, a short 16 months later it is time for an update because Revel, which was supposed to have a viable balance sheet upon emergence from its first Chapter 11 filing, just filed for bankruptcy for a second, and most likely final time: the dreaded "Chapter 22." And not only did the company admit its business model is not viable not due to its overlevered balance sheet, but because of the sad state of the economy and the AC gambling market, it also warned it may shut down permanently if it can't find a buyer in bankruptcy court (its odds of selling may be higher if it includes the cast from the original Revel ad shown below, in the transaction).
As a reminder, and as we reported last year, as part of the first debt for equity bankruptcy exchange, Revel wiped out $1.5 billion or the bulk of its debt. Apparently, not enough, because the casino is again on the verge of liquidation a year later.
Back in February 2013 when explaining why more bad money was being thrown after good, we said that...
...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.
We were right.
In warning letters given to employees and obtained by The Associated Press, Revel said it is seeking a buyer for the struggling $2.4 billion casino, but can't guarantee one will be found. If not, employees could be terminated as soon as Aug. 18, Revel said in the letter.
"If Revel is unable to complete such a sale promptly, Revel expects to close its entire facility," the letters read. The company also said it plans to stay open while it searches for a buyer, operating as usual, honoring player comps and paying employees and vendors.
Shortly after distributing the letters, Revel filed a Chapter 11 petition with the federal bankruptcy court, its second in as many years.
Will Revel find buyers in a liquidation sale? Maybe, if the price is right. As in far, far lower than its original valuation, which as a reminder was just shy of $1 billion in equity investment by its original investor Morgan Stanley. And that of course excludes the billions in debt that has now been impaired not once but twice.
It could not be determined how much Revel might sell for in a bankruptcy auction, but it is sure to be a steep discount. Wall Street analysts and some casino executives said last month that $300 million was too high a price for the casino. A union that has been at odds with Revel since before it opened pegged its value in April at $25 million to $73 million, based on public filings.
For much of the past year, Revel has sought a buyer for the property, which has remained eighth out of Atlantic City's 11 casinos in terms of the amount of money won from gamblers. But it also kept the option of a second bankruptcy filing as potential buyers expressed interest but failed to pursue a deal.
In other words, the twice bankrupt casino, that in 2007 was worth billions, and saw a $932 million investment by Morgan Stanley, is now worth between $25 and $73 million. Sounds about right for the "recovery."
Then again who could have possibly foreseen it: Revel has never been profitable since it opened in 2012. It posted a gross operating loss of $21.7 million in the first quarter this year. For all of 2013, it lost $130 million, up from the $110 million it lost during the nine months it was open in 2012.
But perhaps the biggest irony, as we pointed out over a year ago, was that in the press release surrounding the first bankruptcy, the new, now wiped out, investors were proud to point out that:
No tax payer funds will be used to finance the restructuring.
What about the second restructuring? And perhaps in retrospect, taxpayer funds should have been used: maybe only then the casino would have survived a few extra months. Or perhaps unlike the GM bailout, where it cost taxpayers only a few billion to make sure Obama would get the benefit of a few hundred thousands teamster votes, the hospitality-worker union in Atlantic City simply didn't offer enough votes for sale.
Joking aside, it is increasingly becoming the case that insolvent projects can sustain their money-losing existence only when they have taxpayer-funded generosity breathing new life into them again... and again... and again.
In conclusion, below is an artist's rendering of what Revel could have looked like in an economy that actually was recovering: