Revel is seeking a $100 million financing deal to give it an extra cushion through 2013, following some disappointing results in its first few months of operation.
The $2.4 billion luxury megaresort has $50 million worth of revolving credit, but it announced Monday it is in discussions with investors to increase that to $100 million. It would represent an entirely new financing package.
“We appreciate the support of our investors,” Revel’s Chief Executive Officer Kevin DeSanctis said in a statement. “Upon completion of this (credit) facility, we will have significant liquidity cushion through 2013 and beyond. We are excited about what we have delivered from a product and experience perspective and remain confident our strategy and differentiated economic model will result in significant value creation for our stakeholders.”
Revel spokesman Joseph Jaffoni said the deal is expected to close in about a week. It would provide an even stronger financial safety net for Revel as the casino continues “making corrections” in some of its weaker areas of operation, he said.
Jaffoni noted that Revel is getting strong interest from big institutional investors about the new financing deal. He said Revel has been able to show progress in other parts of its business to offset some concerns about its gambling revenue. He cited group meetings and food and beverage sales as strengths.
Revel has struggled since opening April 2 amid great fanfare as Atlantic City’s first new casino in nine years. It has ranked only eighth in gambling revenue each month among the city’s 12 casino hotels. In addition, figures released Friday by the New Jersey Division of Gaming Enforcement show that Revel suffered a nearly $35.2 million operating loss in the second quarter.
Last week, Wall Street financial firm Standard & Poor’s downgraded Revel’s corporate credit rating to “CCC” from “B-minus,” citing the casino’s lackluster gambling revenue. S&P also warned that Revel’s cash flow is unlikely to be enough to meet annual debt payments, capital expenses and other costs, estimated to be $120 million starting in 2013.
“The downgrade reflects our view that a strong opening for the Revel resort was critical to the company’s ability to ramp up cash-flow generation to a level sufficient to service its capital structure. While one of the tenets of the company’s strategy is to appeal to the nongaming customer, the property is heavily reliant on the success of its casino,” S&P credit analyst Jennifer Pepper said.
John Kempf, a casino analyst for RBC Capital Markets, issued a research report Monday bluntly saying that “Revel is off to a disappointing start.” He predicted Revel could begin turning a profit in the third quarter, but noted that the casino’s performance remains well below his original expectations.
Kempf said Revel’s average daily room rate of $211 — $77 higher than second-place Borgata Hotel Casino & Spa — was one bright spot in the second quarter. However, Revel’s hotel occupancy rate of 45 percent badly trailed the industry average of 87 percent, he said.
“Although most of the rooms were counted as available during the quarter, we believe (Revel’s) management was purposely not leasing the rooms, as the property was not completely open. The question will be whether the level of average daily room rates can be maintained as occupancies increase,” Kempf wrote.
Andrew Zarnett, an analyst for Deutsche Bank, said Revel’s gambling revenues “have clearly been underwhelming.” Instead of growing the Atlantic City market, as originally hoped, Revel’s modest gambling revenue has been cannibalized from existing casinos, he said.
Revel seems mired in the same conditions that have driven down gambling revenues at the rest of the Atlantic City casinos. Hammered by the fragile economy and competition from casinos in surrounding states, Atlantic City gambling revenue has plunged from a high of $5.2 billion in 2006 to $3.3 billion in 2011 and is down an additional 7 percent this year.
Before it began lagging the market, Revel was seen as the best hope for revitalizing the slumping casino industry. Upscale surroundings were supposed to lure younger, wealthier visitors to the resort town.
During its construction, Revel overcame financing shortages that threatened the project altogether. It secured an extra $1.1 billion in funding last year to restart work on what was then a half-finished casino. The state agreed to $261 million in tax breaks over the next 20 years to help with Revel’s financing.
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