Revel, Atlantic City’s glitzy $2.4 billion megaresort, is seeking more financing to help keep it afloat at the same time analysts are warning that the casino may default on its debt payments.
Even before it opened April 2, there were doubts that Revel could handle its enormous debt, now $1.3 billion and about to go higher. Since then, the casino’s weak financial performance and ominous warnings to federal securities regulators about possible bankruptcy or foreclosure have intensified those concerns.
Kevin DeSanctis, Revel’s chief executive officer, said the company is negotiating a new financing deal with lenders, although he did not divulge the amount. The deal is expected to close within two weeks.
“Our investors have shown a tremendous amount of support for Revel and belief in our business model,” DeSanctis said in a statement.
DeSanctis said the financing package will strengthen Revel’s liquidity as well as provide funding for new gambling amenities. New funding, he noted, also will help Revel recover from the effects of Hurricane Sandy.
The latest quarterly report by the New Jersey Division of Gaming Enforcement underscores Revel’s financial plight. Revel suffered a $36.8 million gross operating loss in the third quarter that ended Sept. 30. Atlantic Club Casino Hotel, the habitually weak property, was the only other Atlantic City casino to post an operating loss in the third quarter. For the Atlantic Club, it was $2.3 million.
Figures show that Revel had net revenue of $61.9 million in the third quarter, but its bills outstripped its income. In the same quarter, Revel paid $37.3 million for interest expenses and nearly $80 million to its vendors for goods and services. Altogether, Revel had an $86.8 million loss in net income for the quarter.
Revel’s third-quarter interest expenses were particularly glaring when compared with other casinos. Borgata Hotel Casino & Spa, annually Atlantic City’s most profitable property, had the second-highest amount of interest expenses in the third quarter, at nearly $20.8 million, figures show.
Month after month, Revel has languished near the bottom of the pack in gambling revenue among the city’s 12 casino hotels. So far, Revel’s best month was $20 million in August. Since then, Revel’s monthly haul from its slot machines and table games has gone down, including just $6.2 million in November in the aftermath of Hurricane Sandy, which caused a weeklong casino shutdown.
While DeSanctis has repeatedly sounded a more optimistic tone in statements issued to the media, Revel itself has acknowledged its difficulties in filings with the federal Securities and Exchange Commission.
“We are highly leveraged and future cash flow may not be sufficient for us to satisfy our debt,” Revel said in an Oct. 1 filing that also mentioned the possibility of bankruptcy or foreclosure.
In another securities filing, Revel disclosed that as of Nov. 21, it had exhausted all but $22.7 million from a $100 million financing deal completed in August. Now it needs another cash infusion. New Jersey Senate President Stephen Sweeney, D-Salem, Gloucester, Cumberland, expressed concern in a Nov. 23 letter to state casino regulators that Revel has been burning through its cash at an “alarming rate.”
Wall Street financial companies Moody’s Investors Service and Standard & Poor’s have downgraded Revel’s corporate credit ratings, each time warning about a possible default in the casino’s debt.
“In our view, they’re not generating the degree of revenue they would need to service their debt. We think they’re not going to be able to do it,” Moody’s casino analyst Keith Foley told The Press of Atlantic City.
Referring to Revel’s gambling revenue so far, Foley said of the company, “It’s nowhere near capable of serving its upcoming debt.”
Foley said he is unsure of Revel’s game plan for solving its financial woes. Even if Revel is able to restructure its debts, it remains stuck in the depressed Atlantic City market, which shows no strong signs of a turnaround in the sluggish economy and against competition from casinos in neighboring states, he added.
“It’s got quite an uphill battle,” Foley said.
Standard & Poor’s estimates that Revel will have $109 million in interest expenses in 2013. The amount will grow in 2014 as cash payments on more debt kick in, making it even more challenging for Revel to avoid a default, S&P noted.
Concerns about Revel’s ability to pay its debt were first raised during the company’s licensing hearing in March before the New Jersey Casino Control Commission. At that time, the commission’s then-chair, Linda M. Kassekert, pointedly told Revel executives that the company’s financial projections appeared “extremely ambitious.” However, Revel’s representatives assured Kassekert they were confident of the casino’s success.
Now, while no one is predicting that Revel will fold, analysts believe that a major refinancing of some sort appears in the cards. In assessing the risks ahead, Revel has conceded in its securities filings that a restructuring could take place in bankruptcy court.
More immediately, Revel needs to build up its gambling revenue. Its $6.2 million take in November was next to last in the industry. Only Trump Plaza Hotel and Casino fared worse than Revel, making just $4.9 million.
“Revel continues to disappoint,” Deutsche Bank casino analyst Andrew Zarnett wrote in a note to investors following the Dec. 10 release of November’s gambling revenue.
Longer term, Zarnett warned that Revel’s troubles could be exacerbated by the lingering effects of Hurricane Sandy as well as consumer spending during the holidays.
“Many (consumers) will now be focused on expenses made toward repairing their property and then Christmas just around the corner,” Zarnett said of hurricane-recovery efforts.
Separate from its worrisome debt, Revel has fallen behind on its payments to construction contractors and its city tax bill. Atlantic City officials said Revel owes $12 million in property taxes, but negotiations have begun to resolve the issue as part of Revel’s tax appeals.
As of Dec. 1, a Press analysis found, more than 40 contractors had filed construction liens against Revel seeking payment of about $37.6 million. Revel has pledged to pay contractors everything they are owed, once the casino completes a final audit of the construction work.
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