Tropicana Entertainment LLC

The saga of bankrupt Tropicana continues. Marking a victory for the company's bondholders, William Yung will step down from the company's board. The bondholders will also withdraw their motion to appoint a Chapter 11 trustee to run the company. Overall, the case is notable for several reasons including the beginning of the sector's demise and the fact it is of the largest bankruptcy filings this year.

Penn National Gaming Inc.

On the buyout front, the $6.1 billion buyout of Penn National Gaming Inc. was scrapped July 3. It marked not only the latest news on the casino front, but was also the latest buyout to go bust. The news came days after Illinois gaming regulators gave their OK June 26 on the deal, which curiously went under review as it looked like the agreement was expected to be restructured or scrapped all together. There has been talk, The Deal's Scott Stuart noted, the $67 per share deal buyout from Fortress Investment Group LLC and Centerbridge Partners LP could be renegotiated to anywhere between $30 to $57. Penn was in June trading at nearly half the take-out price.

But back to Tropicana. Kicking off May, Tropicana finally found itself seeking bankruptcy protection. The casino operator, which owns the landmark Tropicana Las Vegas and is the former parent of the Tropicana Casino and Resort in Atlantic City, N.J., listed $2.84 billion in assets and $2.43 billion in debts in its petition, but the Tropicana AC is not part of the filing and subject to sales procedures under the New Jersey Casino Control Commission's watch. (That process was to start over after the Commission rejected all bids June 18, as Reuters noted.)

Of the case itself, Fidler wrote:

The filing itself is an emergency response to the expiration of a forbearance period on close to $1 billion in unsecured notes. Tropicana has been headed on a slide toward Chapter 11 for some time, starting with the legal wrangling over its casino practices with the NJCCC. On Dec. 12, the commission stripped Tropicana AC of its gaming license, only the second time this has ever happened in New Jersey's history. [Tropicana warned at the time it could end up in Chapter 11 if its lenders accelerated its debt.]

The commission had claimed that the casino failed to meet strict state licensing requirements, including "a lack of business ability, a lack of financial responsibility, and a lack of good character, honesty and integrity." The commission also said that since taking over the casino, Tropicana's regulatory compliance "has been abysmal."

Former New Jersey State Supreme Court Justice Gary Stein was appointed as conservator and was given 120 days to sell the Atlantic City casino, drawing the interest of Colony Capital LLC, the Mohegan Tribal Gaming Authority's Mohegan Sun and New York developer Joseph Palladino, Fidler noted.

But times are tough for gaming companies, he wrote:

The punches thrown at Tropicana by the NJCCC and the noteholders landed harder because of a dismal environment for gaming companies as consumers cut back on traveling and gambling. The NJCCC reported, for example, that Atlantic City casinos suffered a 9.6% year-over-year decline in gross operating profits and a 4.8% decline in net revenues in 2007.

Tropicana warned in court documents that it would likely receive an unfavorable sale price for the Tropicana AC given the deadline by the NJCCC to sell the property (June 9) and an "inhospitable real estate market."

As it restructures, Tropicana could sell some or all of its assets or reorganize around some casinos. Tropicana owns the Tropicana Las Vegas Resort and Casino in Las Vegas, which spans 34 acres of the Las Vegas Strip. The Tropicana AC is New Jersey's largest casino resort, with upwards of 2,100 hotel rooms and gaming space spread over 148,000 square feet.

The Tropicana is also tied to one of the most contested casino auctions of late, which closed just before the sector's "precipitous collapse," Fidler explains.

Crestview Hills, Ky.-based Tropicana, an indirect subsidiary of Columbia Sussex Corp. (which did not file a petition) and run by [Yung,] is the entity formed out of the 2006 buyout of Aztar Corp. Columbia Sussex won the assets of Aztar after fierce bidding that resulted in a price that the company noted in documents was reflective of the height of the real estate market. The highly leveraged deal -- valued at $2.75 billion -- was completed on Jan. 3, 2007, just prior to the sector's precipitous collapse.

The Aztar deal was largely financed through a $1.71 billion senior credit line and the unsecured notes -- the two debt pieces that were primarily responsible for triggering the company's bankruptcy filing.

FALLING FAST

The latest casino group to find itself in Chapter 11 was Greektown Holdings, which went belly up May 29, unable to land the $140 million it needs to expand its Detroit casino. Greektown operates the casino owned by the Sault Ste. Marie Tribe of Chippewa Indians and Monroe Partners LLC. Troubles for the company were brewing for awhile, The Deal's Ben Fidler noted, as the company had been in default of its secured debt for months and having violated financial covenants under the Michigan Gaming Control Board. The company landed a $150 million DIP loan the day after it filed, hoping the capital will help it complete its planned expansion. (Greektown was in late June given permission to use all of its DIP, which puts it on course for a sale or reorganization in mid-2009.) Another pair of filings came in mid-March: Louisiana Riverboat Gaming Partner on March 11 and Roadrunner River Resort LLC on March 12.  Other recent bankruptcy activity among casino groups includes:

• Legends Gaming LLC, which operates two Southeast DiamondJacks Casinos, filed Chapter 11 March 11 in the U.S. Bankruptcy Court for the Western District of Louisiana in Shreveport, owing first-lein and second-lein lenders more than $200 million. The company won approval for its funding strategy a few weeks later.
• Premier Entertainment Biloxi LLC, the parent of The Hard Rock Hotel & Casino Biloxi,  saw its reorganization planned confirmed in August 2007.
• The "cantankerous bankruptcy" of GB Holdings Inc.
• The eventual sale of President Casinos Inc.'s President Riverboat Casino-Missouri Inc., or PRC-MO, to Pinnacle Entertainment Inc.

Meanwhile, prominent dealmakers Donald Trump, who is no stranger to bankruptcy, and Carl Icahn have played their hands, as well.  

KNOW WHEN TO WALK AWAY

Aztar Corp.
The bidding war was at center stage for dealmakers in casinoland for three months. At last there was a winner, as Pinnacle folded and Columbia Sussex Corp. was left holding the winning hand. The pair signed a merger agreement for $54 per share, or $2.62 billion, including assumed debt -- more than $500 million more than its original suitor offered to pay in March.

• Nearly three months and 13 public bids later, the deal wrapped up fast. In one day, Aztar terminated its merger agreement with Pinnacle, paid it nearly $80 million in termination-related expenses and jumped ship for Columbia Sussex.
• In mid-March, Pinnacle Entertainment Inc. first announced plans to take Aztar and its coveted Tropicana Resort & Casino on the notorious Vegas Strip for $38 a share. The deal was valued at $2.1 billion.
• Illustrating that casino deals can, in fact, go through swiftly, Morgans Hotel Group agreed to pay $770 million for Hard Rock Cafe's Vegas outpost ... as the Aztar bidding war dragged on.

CASINOS' BIG BUYOUTS

Riviera Holdings Corp.
Riviera Holdings said in March it was not actively selling itself, but remains in discussions with Riv Acquisition Holdings Inc. It's been a really long discussion. The Deal's Scott Stuart explained in August 2007:

• Riv Acquisition has a $34 per share offer outstanding for Riviera. Riv is a vehicle for real estate and media investors Paul Kavanos and Robert Sillerman of New York-based Flag Luxury Properties LLC, along with Las Vegas developer Brett Torino and Barry Sternlicht of Starwood Capital Group. (The buyer group owns rights to the Elvis persona, which presumably offers Vegas synergies.)
• Riv acquired about 9% of Riviera from its CEO, William Westerman, in early 2006 for $15 per share and picked up an option on another 9% from Triple Five Investco LLC in March.
• Riv then made a $27 per share offer for the balance. In May, Ian Bruce Eichner and Dune Capital Management LP launched a rival offer at $30 per share, prompting Riv to raise its bid to $34.
• But Riviera, which has been exploring strategic alternatives with advice from Jefferies & Co., took the position that the Riviera-Triple Five option violated Nevada's control share law so Riv cannot pursue a deal for Riviera for three years.
• A Nevada court ruled against Riviera on that, the week before, so the Riv approach is live again.
• Riv had struck a $17 per share definitive agreement with Riviera in 2006. That was shot down by shareholders, but the defeat may have been due to an 11th-hour, arguably dubious bid from a Boston-based shell, International Gaming & Entertainment LLC.
• That bid triggered a termination fee clause, obliging Riviera to pay a fee to Riv if it entered another deal within a year of terminating the Riv deal. That period ended in August 2007, making it slightly cheaper for a buyer to move on the company. But, given the debt market conditions, a new deal in the short term seems unlikely.

Station Casinos Inc.
Station said Dec. 4, 2006, that Fertitta Colony Partners LLC offered $82 per share in cash and debt for the casino group, the latest at the time in a string of casino deals. The bid group with the $8 billion deal offer included Station chairman and CEO Frank J. Fertitta III, vice chairman and president Lorenzo J. Fertitta and Los Angeles private equity firm Colony Capital LLC. The offer was later bumped to $8.8 billion, or $90 per share.

Penn National Gaming Inc.
Ahead of the deal falling apart, the Penn National buyout didn't go before Indiana regulators on May 28, despite the fact the termination date loomed and as terms looked likely to be renegotiated. Stuart noted at the time:

• Risk arbitrageurs think the Indiana regulators are seeking additional financial information related to an updated credit agreement between the private equity sponsors and lenders for the deal, namely: Deutsche Bank AG and Wachovia Securities LLC.
• The deal has been widely expected to undergo a price cut, but arbs are weighing how much of a reduction the Penn board, including Penn chairman and CEO Peter M. Carlino, will accept. Carlino controls roughly 13.8% of Penn. Carlino is rolling $50 million into the buyout but cashing out the bulk of that stake.
• The merger agreement and debt commitment expired June 15. However, both contracts can extend 120 days to secure regulatory approvals if either the buyer or the seller seeks an extension.
• The current deal offers $67 per share for Penn, plus a ticking fee after June 15 of 1.49 cents per day. The sponsors have committed $3 billion of equity. The debt commitment obliges the lenders to provide $5.1 billion in senior secured credit facilities and $2 billion in term loans. The market rumors pegged $58 as a revised price, but some arbs think that number is pure speculation.

Harrah's Entertainment Inc.
The $17 billion buyout of Harrah's Entertainment Inc. closed in January 2008, nearly a year after the original take-private agreement with Apollo Management LP and TPG Capital was struck, and despite media speculation the deal might not close because of trouble in the debt markets.

The deal was announced Dec. 19, 2006, and approved by shareholders in April 2007. News of a prospective Harrah's buyout, worth $81 a share, first surfaced Oct. 2, 2006, but news reports Oct. 11 pegged the offer at closer to $83 to $84 a share. Reports on Dec. 12, said the private equity bidders could propose an $87 per share take-private. TPG and Apollo would pay $90 a share, the company said Dec. 19.