|By Donald Wittkowski, The Press of
Atlantic City, Pleasantville, N.J.McClatchy-Tribune Regional News
Jan. 26, 2011--ATLANTIC CITY -- The developer of the $2.5 billion Revel casino project is proposing a new financing plan to finally complete the half-built megaresort.
Financing would include three loans totaling about $1.15 billion, said Wall Street sources familiar with the terms. For months, Revel Entertainment Group has been pursuing about $1 billion in funding.
Revel Entertainment and its financial adviser, JPMorgan Chase & Co., will be trying to sign up investors for the loans in coming days, including holding a meeting with lenders in New York on Tuesday. Sources described the initial reaction from potential investors as "positive."
The latest financing plan comes just two months after Revel unsuccessfully proposed two high-yield bond offerings of $800 million and $472 million to save the project. Revel had turned to bonds as a possible funding source after flirting with a $1 billion financing deal from the Export-Import Bank of China.
Construction plans for the Boardwalk casino suffered a severe setback in April when Revel's chief financial backer, Wall Street giant Morgan Stanley, withdrew from the project and put its ownership stake up for sale. Morgan Stanley booked a $932 million loss in the first quarter of 2010 on its Revel investment and followed with a $229 million loss in the third quarter. The company now estimates the value of its stake at just $40 million.
Morgan Stanley spokesman Mark Lake reiterated the company's intention to sell its ownership in the casino, but declined further comment following disclosure of the new financing plan. Kevin DeSanctis, Revel's chief executive officer, did not return a call seeking comment Tuesday, and the company made no announcements. JPMorgan declined comment.
Revel's new funding package includes a $700 million loan for a first-lien position, giving those investors the most security and putting them first in line as the principal mortgage holders. A second-lien loan of $150 million includes a junior ownership stake. A third loan of $295 million would give investors only a small amount of equity in the casino, sources said.
Investors will take a gamble that Revel's casino revenue will be enough to pay off the debt. Andrew Zarnett, gaming analyst for Deutsche Bank, estimated Revel could generate $175 million annually in gross operating profits.
"The ambitious development plan envisioned by Revel and Kevin DeSanctis is the type of redevelopment that can allow Atlantic City to make its comeback," Zarnett said.
Revel is a piece of Gov. Chris Christie's plans to rejuvenate the slumping Atlantic City market, including the creation of a state-run Tourism District to oversee the casino zone, beaches and Boardwalk. Christie has been involved in high-level talks with Morgan Stanley to nudge the casino project along.
"The Revel project needs to be completed. The governor has been crystal clear about that," Christie spokesman Mike Drewniak said. "It is critical to Atlantic City and the governor's vision for the future of Atlantic City."
Revel is rising on a 20-acre oceanfront site next to Showboat Casino-Hotel. Construction is nearly completed on the exterior of the casino-hotel complex. New financing would allow Revel to resume the interior work, which was halted in January 2009 when the company began to struggle with money shortages. Revel has estimated it will take about 17 months to finish the interior once work is restarted, pushing the grand opening into 2012, two years later than originally planned.
Revel is expected to be the last huge casino built in Atlantic City for years to come. The sluggish economy and intense competition from Pennsylvania's casinos have driven down Atlantic City gaming revenue four years in a row, making prospects for another multibillion-dollar, Revel-style casino bleak.
However, Christie signed legislation this month allowing two smaller, boutique-style casinos to be developed in Atlantic City. Those casinos would be allowed to have as few as 200 rooms, less than half of the old 500-room minimum for Atlantic City casino hotels.
Smaller casinos would make it more affordable for developers to enter the Atlantic City market. Christie, during the Jan. 5 bill signing for the boutique casinos, said they will help jump-start the local economy by creating new jobs for construction-starved labor unions.
Months ago, Hard Rock International announced tentative plans to build a smaller-scale version of its music-themed casinos if the boutique casino legislation became law. The company has repeatedly declined comment following the governor's bill signing.
News of Christie's involvement in negotiations to restart the Revel casino project comes after lawmakers passed legislation Jan. 10 aimed at changing the regulations applied to Atlantic City's casinos.
Two provisions in the bill S12 are widely seen as beneficial to Revel's potential investors.
One section reduces the requirement for all debt-lenders involved in casino projects to undergo a qualification process by the Casino Control Commission. The change means institutional investors undertaking less than certain percentages of a project's total value would not have to go through the process where the commission assesses their financial stability.
A second provision expands the rules of how many casinos one company may hold. The change would have prevented an existing casino company from acquiring the Revel project, on the basis that it would violate the expanded definition of undue economic concentration
State Sen. Jim Whelan, D-Atlantic, confirmed Tuesday that the provisions would ease the process for Revel's investors.
"These help anyone who is searching for capital, and today, Revel's it," Whelan said.
Institutional investors holding either less than 25 percent of the equity securities or debt securities of a casino licensee's holding, or in some cases less than 50 percent of issued debts, can avoid the qualification process. Investors must sign a certified statement that it has no intention of influencing or affecting the affairs of the issuer, the casino licensee or its holding or intermediary companies.
Whelan also confirmed he had knowledge of Christie's direct involvement in seeking to persuade Morgan Stanley to get on board.
"I'm extremely grateful he has taken this action, which has made it far more likely things will move ahead."
Staff writer Juliet Fletcher contributed to this report.
Contact Donald Wittkowski:
Revel funding timeline:
Jan. 28, 2009: Revel Entertainment Group lays off 400 workers and slows construction on the $2.5 billion casino while it searches for additional financing.
March 31, 2010: New Jersey Division of Gaming Enforcement documents indicate Revel is close to reaching a loan agreement with the Export-Import Bank of China for "well in excess of $1 billion." The loan never materializes.
April 1, 2010: Wall Street investment bank Morgan Stanley, Revel's chief financial backer, announces it is pulling out of the project and will put its ownership stake up for sale. Morgan Stanley books a nearly $1.2 billion loss from its investment in Revel.
Nov. 6, 2010: Revel discloses funding plans that include two high-yield bond offerings of $800 million and $472 million. The plan fails.
Jan. 25, 2011: Revel and financial adviser JPMorgan & Chase Co. propose three loans totaling about $1.15 billion to finally complete the financing.
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Copyright (c) 2011, The Press of Atlantic City, Pleasantville, N.J.
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