Resorts and the Hilton fail to keep pace in a fast-changing world of Atlantic City Gaming

What were first seen as wise purchases by real estate company Colony Capital could become disasters as first Resorts Atlantic City and now the Atlantic City Hilton have defaulted on their mortgages.

Eight months in arrears on a $360 million mortgage, Atlantic City’s first casino has asked state regulators if it can transfer ownership of the flagship property to its lenders.

Resorts Casino Hotel, which ushered in Atlantic City’s gaming era back in May 1978, last paid its rent in October 2008. In March, main lender Column Financial Inc. got approval from the New Jersey Casino Control Commission to begin foreclosure proceedings. The commission will consider the current petition for transfer at a hearing later this month.

“If approved, this would be the first time that ownership of a casino hotel would change hands in this fashion,” commission spokesman Daniel Heneghan told the Philadelphia Inquirer.

Resorts’ fortunes are in freefall due to a combination of recession, out-of-state competition, and newer competition in its own backyard. The aging Boardwalk casino is emblematic of the troubles plaguing Atlantic City. After almost three straight decades of financial invulnerability, the East Coast gaming mecca is now in its third straight year of sliding revenues.

The figures for second-quarter 2009 were not encouraging. Gross operating profit totaled $198.4 million for April to June, down 19.8 percent compared with the $247.3 million won by the casinos in the same period in 2008. Borgata Hotel Casino & Spa, which opened in 2003, was the only casino to report an increase with $49.8 million, up 7.8 percent from 2008.

Resorts, meanwhile, and its sister property, the Atlantic City Hilton Casino Resort, came up snake eyes with losses of $1.8 million and $603,000, respectively. Atlantic City's first casino is down 22 percent year-to-date in total gambling revenue from the same period a year ago.

Because of the “Severe impact of the current economic conditions,” the Hilton defaulted on its mortgage in July.  Casino officials said they are in negotiations with the lender to alter the terms of the mortgage. The company still owes $348 million on the Hilton in addition to nearly $1 million in deferred interests. In the meantime, it’s business as usual at the Hilton, according to the company.

Since January, Resorts has tried to fend off the takeover by Column Financial, a subsidiary of Credit Suisse. Though regulators ruled that Column could begin foreclosure, it also said the casino's owner—Resorts International Holdings LLC—could maintain control over its own bank accounts.

After the March ruling, Resorts International CEO Nick Ribis said a deal with the lenders might help the casino avoid bankruptcy. At the time, he told the Atlantic City Press, “We are trying to work this out so the operation will continue to move forward at a time when we are in terrible distress. Just because things get difficult doesn't mean you walk away.”

Under the present management agreement, Ribis would stay on to run the property. Resorts' current owner, L.A.-based real estate firm Colony Capital LLC and its corporate affiliates, would transfer their stake to the former Trump executive and leave. Reports that the Fine Point Group would be brought in to manage the casino could not be substantiated at press time.

Colony bought the casino in 2001 at the then-bargain-basement price of $140 million. Prior owner Sun International Hotels Ltd. paid $301 million five years earlier to buy it from entertainer Merv Griffin. Griffin's ownership, from 1988 to 1996, was marked by two bankruptcies.

Resorts’ decline is related in part to its image as a casino for older patrons, reports the Atlantic City Press, which quoted several senior patrons in its story on the takeover. One, 78-year-old gambler Marge Savoca, said, “Most of the senior citizens from our area in Long Island come here.” Another, 68-year- Mel Druin, compared Resorts (unfavorably) to Borgata, the city’s newest casino.

"Borgata is much more upscale,” Druin told the Press. “It leaves Resorts and everybody else behind.”

With approval from the Casino Control Commission, Resorts will be owned by be a coalition of lenders, including Wells Fargo on behalf of Credit Suisse First Boston Mortgage Securities Inc.  Still at issue is whether the commission will require those lenders to get a full-fledged casino license as part of the takeover, or approve their request for what the Press called “a less onerous non-gaming service industry license.”

In papers filed with the commission, the lenders say they need only a nongaming license because they will not have direct control over Resorts' operations. Ribis, who already holds a full casino license, would have control in his role as Resorts' operator under the proposed management structure.

Colony bought the Atlantic City Hilton in September 2004 from Caesars Entertainment, also known as Park Place Entertainment, as part of a four-casino acquisition.

By Staff