Revel wants to satisfy some of its debt by earmarking money from future state tax breaks, but by filing for bankruptcy, the megaresort is jeopardizing $261 million in total eligible tax breaks, financial filings show.
Atlantic City’s newest casino, which has begun the process of restructuring $1.5 billion in debt, wants to satisfy its obligation to one group of creditors by promising them rights to future tax breaks up to $70 million, according to documents Revel filed Thursday with the federal Securities and Exchange Commission.
But in an agreement Revel struck with the state Economic Development Authority in 2011 — which authorized the granting of $261 million in tax breaks over 20 years — filing for bankruptcy, including voluntarily, is grounds for a default and allows the state to end the agreement. That means Revel may never receive any tax breaks for which it had once been approved, and creditors also may never have access to it.
No decision has been made on whether to end the Economic Redevelopment and Growth Incentive Grant Agreement with Revel. But state officials said there is no risk to taxpayers because Revel has not yet satisfied all of the requirements in its grant agreement. That means that even though the casino has been operating for nearly a year, no tax reimbursements have been paid to the casino.
“The state EDA has not made any payment,” said Tim Lizura, president of the Economic Development Authority. “As such, there’s no state revenue that’s going to be used to fund any default, and we will work through the bankruptcy process with all of the attorneys to protect the state’s exposure and ensure the long-term success of Revel.”
The tax breaks, which essentially would have returned to Revel a portion of its sales, hotel and corporate taxes over 20 years, were an important element to the casino securing $304 million in financing, which helped complete construction of the $2.4 billion megaresort last spring.
After struggling to turn a profit last year, consistently placing in the bottom half of the market in gambling revenue, Revel is preparing to file a voluntary prepackaged Chapter 11 case. The casino expects to reduce its debt by about 82 percent, from $1.5 billion to $272 million, according to documents filed with the SEC.
As part of the restructuring, some creditors have agreed to lend Revel an additional $250 million in debtor-in-possession financing to support operations during the Chapter 11 process, according to the documents. The money also will help repay a group of creditors owed $194 million in debt, unpaid interest and fees, and must be repaid before the casino can re-emerge from bankruptcy.
A second group of creditors holds $922 million and would have their debt converted into Revel stock equity, according to the documents. The third and final group of creditors owed $388 million would receive “contingent payment rights” to the tax breaks if they were to be paid out in the next 20 years, according to the filings.
Nearly 90 percent of creditors in the first group and 76 percent of those in the second and third groups have approved of the restructuring deal, according to the document.
Also, as part of the bankruptcy deal, Kevin DeSanctis steps down as CEO, replaced by consultant Jeffrey Hartmann in the interim. However, DeSanctis and Michael Garrity, who would step down as chief investment officer, will continue to work for Revel, according to the SEC filings.
The two will assist with Revel’s Chapter 11 case, negotiate and implement online gambling and sportsbook, and assist with the completion of a high-limit slot area and players lounge, HQ Beach Day Club, a three-meals-a-day restaurant and noodle bar. They will be paid $5.4 million for their services, according to the filings.
“The successful and timely completion of these amenities will enhance Revel AC’s ability to offer guests an experience unmatched in the Northeast, and will help strengthen the overall Revel brand,” DeSanctis said in a statement. “While the resort destination-based business model is new to Atlantic City and will take time to penetrate the market, I remain very optimistic about its long-term potential.”
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