Less than one year after opening, Revel AC, Inc. and its subsidiaries (“Revel”), the owner and operator of Revel Casino in Atlantic City, New Jersey is preparing to file for Chapter 11 bankruptcy protection. According to a Form 8-K filed with the Securities and Exchange Commission on February 19, 2013, Revel has entered into a Restructuring Support Agreement with a majority of its (1) secured lenders under its credit facility and (2) noteholders under its second lien notes. It is expected that Revel will restructure pursuant to a pre-packaged Chapter 11 plan and continue its casino operations as a debtor in possession during the bankruptcy proceedings.
Pursuant to the terms of the Restructuring Support Agreement:
- holders of secured credit facility debt will receive their pro rata share of 100% of new equity (subject to dilution by a management incentive plan) to be issued by the reorganized company;
- holders of secured note claims will receive new notes in the aggregate principal amount of $70 million;
- existing holders of warrants will not receive a distribution;
- holders of general unsecured claims will be paid in full in the ordinary course; and
- existing equity holders will not receive a distribution, as interests of all equity holders will be extinguished pursuant to the plan of reorganization.
According to the Restructuring Support Agreement, the solicitation of Revel’s plan of reorganization will commence on or before March 8, 2013 and the company will file by March 18, 2013.
Post-restructuring, the Board of Directors of reorganized Revel will consist of seven members, one of whom shall be Kevin DeSanctis, the current CEO and six whom shall be chosen by a steering committee of existing lenders. The consummation of Revel’s proposed restructuring is conditioned on the occurrence of several events, including gaming authority approvals, as necessary.
Since its inception, the casino had problems meeting its financing obligations. The casino began in 2006 as a Morgan Stanley development. However, Morgan Stanley abandoned the casino before it was complete and wrote down its entire $1.25 billion investment. In 2011, a group of lenders provided $1.2 billion to Revel to complete the project.
When it opened, Revel sought to diversify the casino market in Atlantic City by offering activities beyond gambling such as providing an entertainment and convention venue. However, this approach proved unpopular among Atlantic City gamblers. Revel generated $8 million less in gambling revenue in January, which according to figures provided by New Jersey, was a 19% drop from December and the second worst month since the casino opened. Moreover, Revel has failed to turn a profit since opening last April.
Revel’s pre-packaged bankruptcy may have political implications in New Jersey because the casino received significant government support in the form of tax refunds and was supported by New Jersey Governor Chris Christie’s efforts to turn around the struggling Atlantic City casino market. Revel has publicly stated that no taxpayer funds were involved in the restructuring. Meanwhile, a spokesman for Governor Christie stated that Revel will remain an integral part in the Governor’s efforts to improve Atlantic City.