Sept. 21, 2011--ATLANTIC CITY -- A huge pension liability could undermine efforts to sell the Atlantic City Hilton Casino Resort as it struggles to survive amid millions in losses and a breakup with one of the most famous names in the hotel industry.

The casino has an unfunded $25 million pension liability, according to an Aug. 10 letter from the National Retirement Fund to the Hilton's chief operating officer, Michael Frawley. A copy of the letter was obtained by The Press of Atlantic City.

Any buyer of the Hilton would likely have to assume responsibility for the pension, meaning it would have to pay out an extra $25 million in retirement benefits on top of the purchase price for the casino hotel. The Hilton's sale price has not been publicly divulged, but gaming analysts estimate it is in the $30 million range.

Michael J. Viscount Jr., an Atlantic City attorney with Fox Rothschild who has been involved in casino bankruptcies, said the pension liability may very well be a deal killer.

"I think that is the major impediment for the sale, next to the market," Viscount said, also referring to the slumping Atlantic City economy.

The New Jersey Division of Gaming Enforcement, which regulates the Atlantic City casino industry, said it is "closely monitoring" the Hilton's finances as the casino moves closer to the expiration of its five-year gaming license in May 2012. The division also noted that it is reviewing the pension fund letter.

"We will develop full information before taking action or submitting filings, and will address and deal with any matters as to (the Hilton) prior to the end of the five-year period of the license," the division said in a statement.

Viscount believes the Hilton's current owner, Colony Capital LLC, is trying to rid itself of the pension liability and other financial obligations connected to the casino by pursuing a "stock sale" for the property.

Under that scenario, the Hilton's buyer would be saddled with the casino's pension fund, labor agreements, payments to vendors, lawsuits and unpaid real estate taxes -- untold millions of dollars in financial liabilities in addition to the purchase price.

Colony Capital has declined to comment on the sale. Richard N. Rust, the fund manager from the National Retirement Fund who wrote the Aug. 10 letter, did not return calls seeking comment. Hilton spokeswoman Tina Belluscio said the casino had no comment.

Colony Capital, a California-based private real estate investment firm, formerly owned Resorts Casino Hotel. Resorts was sold last December for $31.5 million after it defaulted on its mortgage and was taken over by lenders.

Unlike the stock sale being pushed for the Hilton, the Resorts transaction was an "asset sale" that allowed the buyers to acquire the buildings, gaming equipment and property without inheriting the financial obligations of the former owner.

The Hilton has been unable to find a buyer since it was put up for sale by its lenders in January, after it defaulted on its mortgage and was threatened with foreclosure.

A huge blow came in June, when Hilton Hotels & Resorts said it was ending a franchise agreement that gave the casino the right to use the iconic Hilton name. Hilton Hotels did not explain the reason for its action or say exactly when the Hilton name must be removed from the casino.

For the time being, the official name remains the Atlantic City Hilton Casino Resort, Belluscio said. However, the casino has begun calling itself "ACH" -- an acronym for Atlantic City Hilton -- in its advertising campaigns, promotional literature and on its website.

Viscount said the Hilton's buyer would have to pay millions more just to remove the Hilton signs and come up with a new name and brand for the casino. That, too, will add to the difficulty of selling the property, he added.

Analysts question just how long the Hilton can hold on. The casino suffered an $18.9 million operating loss last year and is $10.8 million in the red through the first two quarters this year.

The Hilton was valued at $513 million when it was purchased by Colony Capital in 2005 as part of a $1.24 billion deal for four casinos in New Jersey, Mississippi and Indiana. Colony bought the Hilton a year before casino gambling began in Pennsylvania. The sluggish economy and competition from Pennsylvania have driven down Atlantic City's gaming revenue 30 percent, from $5.2 billion in 2006 to $3.6 billion in 2010.

Atlantic City casino values have plummeted as well. Resorts' $31.5 million sale price was only a fraction of the $140 million that Colony Capital paid to buy the casino in 2001. Trump Marina Hotel Casino, now Golden Nugget Atlantic City, sold for $38 million in May, well under the proposed $316 million price tag during a failed attempt at a sale in 2008.

Contact Donald Wittkowski:

609-272-7258

[email protected]

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