New Jersey casino regulators Friday approved a restructuring plan that creates a new holding company for Revel and is a key part of the $2.4 billion megaresort’s post-bankruptcy switch to new ownership.
Chatham Asset Management, which holds a 22 percent stake in Revel, will be the new company overseeing the casino’s management and operation. In a 3-0 vote, the state Casino Control Commission gave preliminary approval for Chatham to obtain a license.
“They have taken over ownership of Revel at a challenging time as it tries to reposition and redefine itself in order to increase revenues and reach profitability,” said Matthew Levinson, commission chairman. “Chatham is now in a position to help management to develop the steps it will take and chart the future course for Revel.”
Levinson added that Revel “can help transform all of Atlantic City” if it ultimately becomes successful. However, up to this point, Revel has not fulfilled the lofty expectations that were anticipated when it opened in April 2012.
New Jersey-based Chatham is part of a lender group that took ownership of Revel following the casino’s exit from Chapter 11 bankruptcy protection May 21. The deal reduced Revel’s debt from about $1.5 billion to $272 million, giving the financially troubled casino some breathing room as it implements new strategies to boost business and refine its marketing plans.
In testimony before the commission, Chatham portfolio manager Evan Ratner expressed confidence that Revel will hit its financial projections. Chatham, one of Revel’s earliest investors, has $25 million tied up in the property.
“We continue to be very committed to the investment,” Ratner told the commission.
Revel predicts its net revenue will increase from $152 million last year to $256.4 million in 2013. The forecast calls for $322.8 million in net revenue in 2014 and $378.9 million in 2015. Revel also predicts it will narrow its operating loss from $111.1 million in 2012 to $42.7 million this year.
Revel is not expected to start turning a profit until summer 2014, the company has said.
With customers taking their business elsewhere, Revel has languished near the bottom of the pack in monthly gambling revenue among Atlantic City’s 12 casinos. In April, it took in $8 million from its slot machines and table games, placing it next to last in revenue among all casinos.
Revel’s meager gambling revenue could not sustain it. Burning through cash and saddled with a huge debt load, Revel filed for bankruptcy protection in March. Revel’s lenders forgave most of the debt in exchange for becoming the new owners.
Chatham is the only one of Revel’s lead lenders that has applied for a license. Chatham and its affiliates were approved Friday for “interim casino authorization,” a preliminary step in gaining New Jersey licensing approval.
Other Revel lenders are seeking an institutional waiver from the extensive licensing process. As a result, they will have no involvement in Revel’s management. Institutional investors may seek a licensing waiver if they hold less than a 25 percent ownership stake in a casino.
C. Patrick McKoy, a former Atlantic City casino executive, will assume the role of trustee while Chatham’s licensing application is pending. Trustees typically serve as a safety net in the event a casino license is denied for an applicant. If Chatham’s license is denied, for instance, McKoy would step in to take control of Chatham’s equity in Revel and sell it.
Although activation of the trustee is unusual in New Jersey’s regulatory history, it did happen during a highly publicized case in 2007, when Tropicana Casino and Resort’s troubled former owners were denied a license. The trustee finally completed Tropicana’s sale in 2009, after a process that was complicated by a legal fight over the casino’s ownership, the recession and Atlantic City’s slumping market.
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