In one of the most Pyrrhic victories in casino-industry history, Colony Capital has managed to prevent foreclosure of the former Atlantic City Hilton. But the cost of victory outweighs the gain. Colony got itself out of this scrape by giving away its Bally’s Tunica and Resorts Tunica casinos, regarded as the best performers in Colony’s crumbling casino portfolio. In return, the mortgage on ACH — which sounds like a sports injury — will be wiped clean. Lenders get 2,386 slots, 35 table games and 439 hotel rooms in Tunica. (Let the bidding for the management contract commence!) Colony retains 2,400 slots, 114 table games and 809 hotel rooms in Atlantic City … but at a property that’s 12% off last year’s market-lagging pace.
One of the conditions of the swap is that Colony and its underwriters recapitalize ACH(ooo!) to the tune of $24 million and change. Aside from paying the electric bill, Colony might do well to retire the unpaid bills and pension obligations that have stymied its attempts to sell the place for 10 months. The former Golden Nugget Atlantic City is on pace to lose $22 million this year alone, so investing $24 million ($9 million of which is contingent upon an insurance claim) is like trying to stem a flood with a sieve. It may be able to keep operating for another year, as Colony will soon argue before the New Jersey Casino Control Commission, but how longer past that? If the free market hasn’t selected this property for extinction, the best survival tactic would be remove all encumberances and sell it ASAP, for whatever can be gotten. ACH COO Michael Frawley claims there was “no shortage of [potential] buyers” but he just couldn’t find “the right fit for the company” — which sounds like a load of bunk to me. Judging by the bargains they struck, neither Tilman Fertitta nor Dennis Gomes got the memo that it’s a seller’s market on the Boardwalk this year.
The $513 million that Colony paid for the A.C. Hilton is money that neither CEO Tom Barrack (right) nor his investors will ever see again. However, Barrack is trying to claw some of it back from widows and orphans, demanding a refund of monies disbursed to the Casino Reinvestment & Development Authority. Blech. Hopefully he’ll soon be gone. Before that happens, that silly-ass “ACH” moniker may be retired, too. So it’s, on balance, a good day for Atlantic City.
Whoever took the “under” on how long it would be before the political establishment started pounding the table for Class III gambling at Resorts World New York, congratulations. Already, a significant coalition is fomenting an upgrade of the week-old Aqueduct racino and wailing that it is “losing gaming dollars” to adjoining states. Leaving premature hysteria aside, it makes no sense of New York State have almostbutnotquiteVegas-style casinos. Now that the most powerful man in New York, Assembly Speaker Sheldon Silver (D, left) has signaled his approval, it’s a question of when, not if.
This transaction really surprised me. It does seem to be good for AC in that it gets the banks off of Colony’s back and keeps the doors open at the “ACH”. Jobs and tax revenue are preserved for the moment. The banks get the good assets that actually make money and Colony gets….I have no idea. Some proceeds from a now unencumbered property sale? I would imagine that there are very few potential buyers interested in this market at this time. Now take a look at Tunica. 3 properties are suddenly on the market. I imagine that Don Barden’s estate probably has been wanting to unload the Fitz and now Colony’s bankers with Ballys and Resorts. All very interesting.
On Aqueduct…of course they now want tables! The carrot dangled in front of NY’s oh so “innovative” politicians is too great. The argument fore expanded gaming throughout the country goes back to when the first riverboats started “cruising” to nowhere and are now barges parked in a puddle near major metropolitan areas. Its all about the bucks. Genting had to factor in that table games were inevitable for the price they are pumping into that place. Now NY’s politicians need to come up with a way to make it all legal without askgin the voters permission first.