|By Arnold M. Knightly, Las Vegas
Review-JournalMcClatchy-Tribune Regional News
May 11, 2008 - When Kentucky-based hotelier Bill Yung III took ownership of the Tropicana a mere 16 months ago, a $2.5 billion redevelopment of the 34-acre property was envisioned with five towers and 10,000 rooms.
Now, with his gaming subsidiary Tropicana Entertainment bankrupt, he may be lucky to hold onto the Strip property, some industry watchers say.
The property is leveraged with a $440 million loan that was scheduled to mature in July. And the gaming company lists $2.8 billion in assets against $3.3 billion in liabilities.
KDP Investment Advisors bond analyst Barbara Cappaert wrote in an investors note Tuesday that the holders of the loans will push for the property's sale during bankruptcy proceedings.
"While the company may want to retain" the Strip property, it needs new funding so "most creditors including its own term loan holders will push for the sale" of the hotel-casino, according to Cappaert.
At the least, Yung's control and ownership of the company, which he wholly owns and operates as chairman and chief executive officer, may diminish.
"With this whole process, it is likely Bill Yung is going to lose a significant portion of his equity," Wachovia Capital Markets bond analyst Dennis Farrell Jr. said Monday after the bankruptcy filing. "It's difficult right now to understand what the magnitude of that loss of equity might be ... because we're not privy to those negotiations."
Tropicana Entertainment President Scott Butera said Wednesday he could not discuss specifics about the negotiations with lenders, including what Tropicana's and Yung's future may hold.
"How those things get played out are yet to be determined," said Butera, who is described as chief restructuring officer in court filings. "All those things are being negotiated."
As part of the bankruptcy filing, the company is proposing hiring additional executives under Yung to run the company. That process has already begun.
Butera, a former banker who worked with Donald Trump on a restructuring, was hired as the company's first president in March. Butera helped what was Trump Hotels & Casinos and Resorts become its current incarnation, Trump Entertainment Resorts.
Robert Kocienski, formerly of The Mirage and Golden Nugget Las Vegas, was hired as the company's first chief financial officer May 1.
The bankruptcy filing also discusses the appointment of independent directors to the company's board.
However, a motion filed Monday by Wilmington Trust Co. in U.S. Bankruptcy Court in Delaware asked the court to distance Yung from the bankruptcy proceedings further.
In Tropicana Entertainment's Chapter 11 bankruptcy filing, the company asked to oversee daily operations during the restructuring process.
Wilmington Trust, the indentured trustee representing $995.7 million worth of note holders in the bankruptcy, is challenging that request and wants the court to appoint a trustee because Yung "has come close to destroying" the gaming company's operations.
"Yung's grossly misguided business decisions and autocratic and contentious managerial style" led Tropicana Entertainment "to disaster after disaster," according to the filing.
A spokesman for Wilmington Trust declined to comment.
However, the motion points out that Butera still answers directly to Yung, who has the sole discretion to fire Butera and other executives in the company. This puts Yung in ultimate control of a restructuring he caused, the trust argues.
Tropicana Entertainment is a gaming subsidiary of Crestview Hills, Ky.-based Columbia Sussex Corp., Yung's closely held, family-owned hotel company. Columbia Sussex, founded in 1972, generated $1 billion in revenues last year through its ownership and operations of nearly 70 hotels in North America. The nongaming properties are branded under the Hilton, Westin, Sheraton, Renaissance, Wyndham, Doubletree and Marriott names, according to court papers.
However, the gaming subsidiary has been struggling to pay off debts incurred largely from the $2.1 billion buyout of the Aztar Corp., which included the Tropicana, in January 2007.
Yung outbid established publicly traded gaming companies Ameristar Casinos and Pinnacle Entertainment in a bidding war .
Pinnacle Chairman and CEO Dan Lee said during an earnings call that the company did not match Yung's bid because it was "too high a price."
"I don't take any delight in their problems," Lee said. "Frankly, we've had a number of dealings with them and I don't find them very pleasant people. But the hardships this puts on their employees is unbelievable, and that's sad."
Using tactics Yung had successfully employed as a hotelier, company management began cost-cutting and laid off nearly 1,000 people in Atlantic City. The layoffs prompted an uproar from unions.
"I think all this does is, hopefully, speeds the demise of Bill Yung and gets operators in there that know how to run the place," Culinary Local 226 Secretary-Treasurer D. Taylor said about the bankruptcy.
In December, New Jersey gaming regulators denied Yung's license, forcing the company to put the Tropicana Atlantic City up for sale.
Farrell said many of the practices that worked in smaller markets in the hotel industry did not transfer well to Yung's gaming operations.
"What he tried to do was take a hotel practice of cost-cutting that worked in small, regional markets and expand it to other markets that are more resort-focused like Atlantic City," Farrell said.
Lee said when regulators ask Pinnacle "to jump, we ask how high. And I'd suggest that Columbia Sussex had a different attitude and found out that's not a healthy thing."
Troubles mounted for Tropicana Entertainment. Creditors feared that the license denial would mean the casino company would no longer have the money to pay its debts.
Because Yung ran into regulatory problems in Indiana, he is selling the Casino Aztar in Evansville.
Nevada Gaming Control Board Chairman Dennis Neilander said an investigation into Yung's operations in the state will continue during the bankruptcy.
Besides the Tropicana on the Strip, Tropicana Entertainment also owns the Horizon and the MontBleu in Lake Tahoe, and Tropicana Express and River Palms in Laughlin.
Yung also owns the Westin on Flamingo Road under a separate subsidiary.
The bankruptcy filing does not affect the way the company's properties in Nevada are regulated. However, Neilander said, if the Wilmington Trust motion is granted, state gaming regulators would start "working with the trustee in terms of jurisdiction."
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