Onex Sees Clear Path to Tropicana Ownership

"On May, [the resort's] plan of reorganization was confirmed and, subject to certain regulatory approvals, Onex expects to be in a position to take control of Tropicana Las Vegas later this year," the company stated.

Tropicana Entertainment LLC filed for protection from creditors under Chapter 11 of the US Bankruptcy in May 2008. Since the filing, Onex, through a through a special purpose entity, has acquired more than US$200 million of the principal amount of the company's $440-million term loan secured against its Las Vegas property. The debt was purchased at various discounts and financed through a credit facility established for the purpose of making the purchases, Onex says.

"Onex has been working with Tropicana and the other debt holders on a restructuring plan that provides for Onex' control of the Las Vegas property upon emergence from bankruptcy," the company states in a recent SEC filing. "The [bankruptcy reorganization] plan provides for the secured creditors, including Onex and the other holders of the $440 million term loan, to receive 100% of the equity in the Las Vegas property, and for Alex Yemenidjian, former President of MGM Mirage and Onex' industrial partner, to be appointed as the new chief executive officer of the property."

Onex believes the "pro forma company" is well positioned for a turnaround and able to withstand the current downturn in the Las Vegas market as it will have no debt, slightly more than $20 million in cash and a working capital facility to be put in place shortly. A company source tells GlobeSt.com that no more detail about the transaction will be proffered at the company's annual general meeting tomorrow. The silence should be seen as quiet confidence, he suggests.

"We are value investors and we like to buy situations like this; there are no deal killers that we can see," he says. "We're excited about the guy we've partnered with [Yemenidjian] and think it's a good opportunity, a good bet on Vegas."

Onex is a private equity investor and asset manager, generating value from growth in the company's $3.6 billion of proprietary capital; management fees based on the US$6.5 billion of third-party capital committed to its funds, and a carried interest based on the performance of those funds.

Onex began fundraising for Onex Partners III in early 2008 with a target of US$3.5 billion of third-party capital. As of March 31, 2009, Onex had closed on $3.1 billion of third-party capital. The fund's final close is scheduled for September 30, 2009.

Onex began drawing management fees from Onex Partners III in late 2008. The current annualized rate of this revenue stream is approximately $80 million for the Onex Partners and ONCAP funds, "which more than offsets the company's operating costs," Onex said.

Tropicana is one of the oldest and best-known casino names in Las Vegas, in part due to its location at one of the busiest pedestrian intersections in the world, Las Vegas Boulevard and Tropicana Avenue. The property has approximately 1,850 hotel rooms, a 61,000-square-foot casino, five restaurants, an 850-seat showroom and approximately 1,800 employees.

Last month the resort had to shut down its 560-room Paradise Tower after an inspection turned up a non-compliance issue related to unpermitted plumbing work performed in during a late 1990s remodeling. The tower remains closed.