A subsidiary of hotel owner Columbia Sussex Corp., which is notdirectly involved in the bankruptcy, Tropicana Entertainment andits affiliates own 11 properties, nine of which are covered by thebankruptcy filing. One of the properties not included is theAtlantic City Tropicana, which as a result of the licensing issueis no longer under the company's control. Of those propertiesincluded in the filing, five are in Nevada, two are in Mississippiand one is in Indiana.

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Tropicana president Scott Butera, who will lead therestructuring, says the company has secured $67 million indebtor-in-possession financing from Silver Point Finance, LLC ofGreenwich, CT that should allow it to continue operations whilemaintaining current staffing levels and paying vendors for currentservices. In court documents, Butera lays out the series of eventsthat led to the bankruptcy filing.

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The company started down the path as soon as it acquiredTropicana casinos, from owner Aztar Corp. in January 2007, for $2.1billion in cash, following an intense bidding war. In retrospect,Butera says the company paid a top-of-the-market price just priorto the market's decline. "As a result of the acquisition financing,the debtors became significantly but not inordinately leveraged,which would have been quite manageable had market forces notquickly changed," Butera says.

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The downturn affected company operations in three principalrespects, he says. First, consumers reacted to the economicdownturn by cutting back on their traveling and gambling, "whichcaused an unprecedented drop in the debtors' revenue." Second, hesays the value of real estate, the debtors' main assets, declinednationwide, "sharply reducing the value of the debtors' assets."Third, he says the dislocated credit markets "severely" limited thecompany's access to additional capital and lenders willingness torefinance.

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This combination of factors made the company's leverage "go frombad to worse," Butera says, forcing the company to reduce itsworkforce in Atlantic City—a move that angered the unionrepresenting some of the affected employees—and leaving the company"very little margin for error." That margin disappeared on Dec. 12,when its New Jersey gambling license was not renewed, shutting downone of the most important assets from its Aztar acquisition andsetting the stage for its forced sale.

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The New Jersey Casino Control Commission denied the renewalafter determining that the company was incapable of running the"first-class operation" required by state law. The decision, whichhas been appealed, went against the recommendation of the stateAttorney General's office, which was to extend the license for oneyear. The Commission's decision "was unprecedented in many respectsand, the debtors respectfully assert, was wrong," Butera says.

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The denial was an outcome sought only by the disgruntled union,Butera says, and "must be reversed" because it is based primarilyon the Commission's "misinterpretation of one of its ownregulations, as well as the New Jersey Commission's considerationof matters outside of its regulatory authority," such as thelayoffs in Atlantic City. Butera also asserts that the Commission'sfindings concerning the business ability and integrity of thecompany's officers and directors "were arbitrary and capricious, inthat they were not supported by, and in fact were contradicted by,the evidence presented during the hearing."

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Regardless, the Commission's decision "triggered a series ofcascading events that have led directly to the [bankruptcy]filing…," Butera writes. Those events included the company losingcontrol over the Atlantic City casino, having to cede some controlover its Indiana asset, which it also is being forced to sell, anddefaulting on various debt obligations.

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The sale of the Atlantic City Tropicana is scheduled to occur byJune 9, however, the transaction cannot close escrow until theappeal runs its course. The New Jersey appellate court is scheduledto hear oral argument on May 13.

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The Aztar acquisition was funded by three main facilities. Thelargest component was a $1.7-billion secured credit facility knownas the OpCo Credit Facility, of which $1.3 billion remainsoutstanding. The lenders of that facility now have the economicequivalent of a second lien on the assets of the Las VegasTropicana. The second largest component of the acquisitionfinancing is a $440-million secured credit facility known as theLandCo Credit Facility, the full amount of which remainsoutstanding. The loan is secured by a "perfected first prioritysecurity interest" in the Tropicana resort in Las Vegas. The thirdcomponent of the Aztar acquisition financing was created throughthe issuance of $960 million of 9.6% Senior Subordinated[unsecured] Notes due 2014.

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The largest creditors listed in the filing include WilmingtonTrust Co., as successor indenture trustee for the notes, which hassubmitted a claim for $995.67 million; Park Cattle Co., which hassubmitted a claim for $125 million related to a court settlement;and Mapp Construction, which says it is owed just over $3 million.All other claims, 27 in total, range from $57,000 to $360,000.

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Tropicana Entertainment LLC is an indirect subsidiary ofTropicana Casinos and Resorts, formerly Wimar Tahoe Corp., which iscontrolled by Columbia Sussex. Tropicana Casinos and Resorts owns acouple of casinos outside of Tropicana Entertainment LLC that werenot involved in the bankruptcy. All told, Tropicana Casinos andResorts controls 83,000 hotel rooms and 540,000 sf of casino space,which generate $1 billion of revenue and employ 11,000 people.

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Scott Butera was named president of Tropicana Entertainment inMarch 2008. Butera previously served as COO of the CosmopolitanResort and Casino in Las Vegas and as president, COO and EVP ofTrump Hotels & Casino Resorts. This month, Robert Kocienski wasnamed senior vice president, chief financial officer and treasurerof Tropicana Entertainment. Kocienski previously served as CFO ofthe Cosmopolitan Resort & Casino in Las Vegas and, prior tothat, was employed as a regulator with the New Jersey Division ofGaming Enforcement.

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