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LAS VEGAS-The Tropicana Resort & Casino here shut down 560 of its 1,800 rooms indefinitely last week after a scheduled inspection turned up a non-compliance issue related to plumbing work performed in Paradise Tower during the late 1990s. Owner Tropicana Entertainment LLC acknowledged the situation late last week and said it was working with the county to “bring the rooms into compliance as soon as possible” and that all other resort facilities are fully operational and open to the public.

Ownership, which is in the process of emerging from bankruptcy, has provided no specifics as to the problem, the fix or the timeline for getting the rooms back online. An official in the Clark County Development Services department tells GlobeSt.com the code violation was the result of unpermitted remodeling work.

Holes that were made in the flooring of guest rooms to replace bathtubs and add new copper wiring to the units were not sealed with caulking. “[Such holes] are required to be sealed with fire-rated caulking…in order to slow the migration of smoke in the event of a fire,” the official says. “There was no caulking in place.”

As part of the fix resort ownership will be required to partially demolish several guest rooms to expose the concealed piping and electrical wiring within the wall cavities. “That will give us a better sense of the work that occurred and what needs to be fixed,” the official says.

There is as yet little sense of when the tower will be reopened. When asked if it would be “days, weeks or months” before the tower reopened a Tropicana spokesperson told GlobeSt.com said it is too early to tell but suggested that “months” before a reopening was probably not a likely scenario. “The timeline [for the work] is really up to the Tropicana,” says the city official.

The inspection that turned up the non-compliance was part of a new high-rise inspection program wherein the county conducts annual building inspections of all resort properties in Southern Nevada to ensure they are up to code. The reviews began in October. The annual inspection of the Tropicana began earlier this month.

Average hotel occupancy in Las Vegas was 83.9% in February 2009, the most recent data point. That’s up from 75.5% in January 2009 but down from 92.7% in February 2008.

Weekend occupancy is averaging 85.4% in 2009 while midweek occupancy is averaging 74.1%. For all of 2008, those same average occupancies were 89.8% and 84.3% respectively. In 2007, the comparable percentages were 94.3% and 88.7%.

The decline is a combination of the recession and new room stock. Some 8,000 hotel rooms opened last year, exacerbating a decrease in both travel and consumer spending that has made it hard for highly-leveraged casino-resort operators to cover their debt. This year and next an additional 16,000 rooms will be added to the market.Tropicana Entertainment filed for protection from creditors under Chapter 11 of the US Bankruptcy Code in May 2008 after it defaulted on nearly $2.7 billion in bonds. The default was prompted by the New Jersey Casino Control Commission’s vote Dec. 12, 2007, not to renew the license for Tropicana’s Atlantic City property, its biggest asset, which is now closed and for sale. In August 2008, Tropicana president/CEO Scott Butera was named to the four-man team appointed by the courts to guide the company through bankruptcy.

This week, the New Jersey Casino Control Commission will meet to discuss the proposed sale of the Atlantic City Tropicana. A group led by billionaire investor Carl Icahn is offering to serve as the lead bidder for the casino in exchange for agreeing to cancel $200 million in debt, according to published reports. If the commission signs off, Gary S. Stein, the state appointee charged with finding a buyer, could conduct a bankruptcy auction.

Next week, the company will ask the bankruptcy court to confirm its plan for exiting bankruptcy protection. The plan generally calls for a substantial portion of the company’s $2.74 billion of long-term debt to be converted to common stock, thereby substantially deleveraging the company’s balance sheet and, in theory, leaving it with a serviceable amount of debt and positive cash flow. As for unsecured debt, the plan calls for it to be discharged in exchange for warrants, interests in a litigation trust and cash for certain creditors. Lastly, the plan would cancel all the equity interests of former owner William J. Yung III, who will not hold any positions with the company.

The plan also would split the company into two entities. The OpCo would hold 10 of the company’s 11 resorts while LandCo would be comprised solely of the Tropicana Las Vegas. The secured component of OpCo’s $2.3 billion indebtedness would be converted to common stock and the unsecured component canceled, while all $442 million of LandCo’s secured debt would be converted to common stock.

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