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LAS VEGAS-The owner of the Tropicana casinos in Las Vegas and Atlantic City, and nine other gaming properties, has filed for protection from creditors under Ch. 11 of the US Bankruptcy Code while it restructures. The move by Kentucky-based Tropicana Entertainment LLC comes five months after it lost its license to operate the Atlantic City property, creating cash flow problems. The company listed in its bankruptcy filing assets of $2.8 billion and liabilities of $2.4 billion (as of the end of February).

A subsidiary of hotel owner Columbia Sussex Corp., which is not directly involved in the bankruptcy, Tropicana Entertainment and its affiliates own 11 properties, nine of which are covered by the bankruptcy filing. One of the properties not included is the Atlantic City Tropicana, which as a result of the licensing issue is no longer under the company’s control. Of those properties included in the filing, five are in Nevada, two are in Mississippi and one is in Indiana.

Tropicana president Scott Butera, who will lead the restructuring, says the company has secured $67 million in debtor-in-possession financing from Silver Point Finance, LLC of Greenwich, CT that should allow it to continue operations while maintaining current staffing levels and paying vendors for current services. In court documents, Butera lays out the series of events that led to the bankruptcy filing.

The company started down the path as soon as it acquired Tropicana casinos, from owner Aztar Corp. in January 2007, for $2.1 billion in cash, following an intense bidding war. In retrospect, Butera says the company paid a top-of-the-market price just prior to 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 not quickly changed,” Butera says.

The downturn affected company operations in three principal respects, he says. First, consumers reacted to the economic downturn by cutting back on their traveling and gambling, “which caused an unprecedented drop in the debtors’ revenue.” Second, he says the value of real estate, the debtors’ main assets, declined nationwide, “sharply reducing the value of the debtors’ assets.” Third, he says the dislocated credit markets “severely” limited the company’s access to additional capital and lenders willingness to refinance.

This combination of factors made the company’s leverage “go from bad to worse,” Butera says, forcing the company to reduce its workforce in Atlantic City—a move that angered the union representing 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 down one of the most important assets from its Aztar acquisition and setting the stage for its forced sale.

The New Jersey Casino Control Commission denied the renewal after determining that the company was incapable of running the “first-class operation” required by state law. The decision, which has been appealed, went against the recommendation of the state Attorney General’s office, which was to extend the license for one year. The Commission’s decision “was unprecedented in many respects and, the debtors respectfully assert, was wrong,” Butera says.

The denial was an outcome sought only by the disgruntled union, Butera says, and “must be reversed” because it is based primarily on the Commission’s “misinterpretation of one of its own regulations, as well as the New Jersey Commission’s consideration of matters outside of its regulatory authority,” such as the layoffs in Atlantic City. Butera also asserts that the Commission’s findings concerning the business ability and integrity of the company’s officers and directors “were arbitrary and capricious, in that they were not supported by, and in fact were contradicted by, the evidence presented during the hearing.”

Regardless, the Commission’s decision “triggered a series of cascading events that have led directly to the [bankruptcy] filing…,” Butera writes. Those events included the company losing control over the Atlantic City casino, having to cede some control over its Indiana asset, which it also is being forced to sell, and defaulting on various debt obligations.

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

The Aztar acquisition was funded by three main facilities. The largest component was a $1.7-billion secured credit facility known as the OpCo Credit Facility, of which $1.3 billion remains outstanding. The lenders of that facility now have the economic equivalent of a second lien on the assets of the Las Vegas Tropicana. The second largest component of the acquisition financing is a $440-million secured credit facility known as the LandCo Credit Facility, the full amount of which remains outstanding. The loan is secured by a “perfected first priority security interest” in the Tropicana resort in Las Vegas. The third component of the Aztar acquisition financing was created through the issuance of $960 million of 9.6% Senior Subordinated [unsecured] Notes due 2014.

The largest creditors listed in the filing include Wilmington Trust Co., as successor indenture trustee for the notes, which has submitted a claim for $995.67 million; Park Cattle Co., which has submitted 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.

Tropicana Entertainment LLC is an indirect subsidiary of Tropicana Casinos and Resorts, formerly Wimar Tahoe Corp., which is controlled by Columbia Sussex. Tropicana Casinos and Resorts owns a couple of casinos outside of Tropicana Entertainment LLC that were not involved in the bankruptcy. All told, Tropicana Casinos and Resorts controls 83,000 hotel rooms and 540,000 sf of casino space, which generate $1 billion of revenue and employ 11,000 people.

Scott Butera was named president of Tropicana Entertainment in March 2008. Butera previously served as COO of the Cosmopolitan Resort and Casino in Las Vegas and as president, COO and EVP of Trump Hotels & Casino Resorts. This month, Robert Kocienski was named senior vice president, chief financial officer and treasurer of Tropicana Entertainment. Kocienski previously served as CFO of the Cosmopolitan Resort & Casino in Las Vegas and, prior to that, was employed as a regulator with the New Jersey Division of Gaming Enforcement.

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