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They burned the Monte Carlo ... and may get away with it
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They burned the Monte Carlo ... and may get away with it
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Posted At : January 13, 2009 02:05 PM | Posted By : D McKee
Related Categories: Wall Street,Pinnacle Entertainment,Penn National,Tropicana Entertainment,Marketing,Louisiana,Atlantic City,Lake Tahoe,Mississippi,The Strip,Regulation,Economy,Columbia Sussex,Indiana,Laughlin
If Tropicana Entertainment management's bankruptcy plan is accepted by the courts (one bond analyst thinks otherwise), former CEO/sole owner William J. Yung III will be left with -- what's the technical term? -- diddly squat. (So will his unsecured creditors, alas.)
Actually, he'll have less than nothing because he'll not only be forfeiting the remnants of his Aztar Corp. acquisition but also six TropEnt properties whose purchase predated the ill-starred Aztar buy. A portfolio cobbled together in bits and pieces over several years will be gone with the thwack of a gavel.
In which case, it will essentially close the book on The Worst Casino Acquisition of All Time, Bar None. Since Yung swung the Aztar deal by cross-collateralizing his motley fleet of casinos and riverboats, losing the Tropicana Atlantic City meant putting the whole kit 'n kaboodle up for grabs. Yung's dismissive attitude toward New Jersey casino regulations came with a $2.8 billion price tag.
Lighthouse Point: Last voyage departs soon.
I was going to write that no one in the casino industry will miss Yung, but he still owns the odd non-Trop casino, like the Westin Casuarina. So he's not going anywhere anytime soon.
The plan being for the secured creditors to roll their debt into TropEnt equity, one can see why CEO Scott Butera was at pains to complicate, stymie and/or outright thwart various asset sales initiated either by Yung or the New Jersey Casino Control Commission. As a Jan. 2, 2008 Morgan Joseph report pointed out, casino companies sell for higher cash flow multiples when peddled en masse, not piecemeal. For instance, Yung paid a whopping 11.3X EBITDA for Aztar, as compared to the 8.4X he plunked down for a Penn National castoff, the Belle of Baton Rouge.
So maybe Butera really thought he could land a higher price for Casino Aztar than Eldorado Resorts was offering or perhaps he just wanted to queer the deal that was on the table. Either way, the endgame was the same: more money. Since his plan hinges partly on regaining control of cash cow A.C. Trop and Casino Aztar, neither of which is a given (and one of which is exceptionally unlikely), TropEnt is still a long ways from being out of the woods.
Tropicana Las Vegas: Same this year, same next year, same in 2013.
Thinking positively, if Butera can't -- as seems inevitable -- get the Boardwalk property back, he can redirect money planned for Atlantic City upgrades into that eternally deferred Tropicana Las Vegas facelift. There's a case to be made, if not much of a case, for New Jersey to brush aside the $550 million offered by Cordish Co. for the A.C. Trop -- particularly if Butera were bound to the same conditions the Division of Gaming Enforcement recommended imposing on Yung 14 months ago: a one-year probationary license and a 26-point set of benchmarks.
But the Garden State is so revenue-parched that it's unimaginable it will tell Cordish to keep its money. And whatever tenuous faith the NJCCC might have in Butera won't necessarily be bolstered by his turnaround plan. The document makes some concrete promises (including $153 million in A.C. Trop upgrades), and its property- and market-growth projections are mostly conservative. For instance, Butera clearly harbors no illusions about the difficulties ahead in Baton Rouge, where Pinnacle Entertainment has a new riverboat coming over the horizon. God bless him, he's an optimist, though: Who else would postulate five straight years of single-digit revenue growth in Atlantic City?
But Butera's strategy posits revenue growth within the context of relatively flat operating and maintenance budgets. Some outright reductions, at least, can be attributed to the cessation of operations at Lighthouse Point in 2009 and Horizon Tahoe two years later. Were it not for that, Butera's numbers would look like something out of the Bill Yung playbook. In fact, certain of the promised reforms, like "Optimize [read: "tighten"] ... slot hold," centralized corporate purchasing and "utilizing third parties for certain services" are purest Yung. Others, such as a Nevada-wide loyalty-card program, appear to be new. (But why stop at Nevada?)
As for a reinvention of the Vegas Trop, don't expect anything before 2014, at the earliest. Likewise, the overdue replacement of Casino Aztar just isn't in the budget. It's a lean regimen for grim times, but give Butera this: He's not spending money he doesn't have and now the creditors to whom he is answerable will be literally invested in improving TropEnt's performance ... if they hope to see their money again.