Fitch: Revel's Second Lien Lenders Likely Biggest Losers

NEW YORK--()--Second lien lenders are likely to sustain material losses in the bankruptcy of Revel Casino Hotel, according to Fitch Ratings. Despite the Atlantic City hotel announcing that it plans to shut down by Sept. 10, the company will continue to seek a buyer. So far, no buyers have moved to purchase the casino as a going concern in a court-supervised bankruptcy auction. The potential liquidation also illustrates the depth of distress for the Atlantic City gaming market.

In past casino bankruptcy cases, the gaming and hotel properties continued to operate following emergence from bankruptcy, although a number were purchased during the bankruptcy. Fitch analyzed 10 gaming bankruptcies in its Sept 4, 2013 report, "Gaming, Lodging and Restaurant Bankruptcy Enterprise Values and Creditor Recoveries." All 10 reorganized as going concerns with a median reorganization multiple of 7.2x, including Revel. Revel emerged from its March 2013 bankruptcy as a going concern with an estimated enterprise value of $450 million.

In its first bankruptcy, Revel reduced debt to $275 million from $1.45 billion. However, cash flows did not improve as projected, which led to continuing operating losses despite cost restructuring efforts.

Fitch believes the asset value in Revel's 2014 case will be significantly lower than the $450 million estimated enterprise value used in the 2013 plan of reorganization, particularly if the casino ceases to operate, while land and equipment are sold piecemeal.

Revel had approximately $447 million of debt consisting $137 million of first lien facility borrowings and $310 million of second lien debt as of the June 2014 bankruptcy filing date. Recoveries for lenders will not be known until the liquidation is completed, either through either a piecemeal sale or as a casino enterprise.

Despite the possible liquidation for Revel Atlantic City, Fitch anticipates that future gaming company bankruptcies will be predominantly going concerns. Single-site project financings, such as Revel and Fontainebleau, are considered by Fitch to be at greater risk for liquidation than large multisite operators.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Managing Director
U.S. Leveraged Finance
or
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Director, +1 212-908-9179
Corporates
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Contacts

Fitch Ratings
Sharon Bonelli, +1 212-908-0581
Managing Director
U.S. Leveraged Finance
or
Alex Bumazhny, CFA
Director, +1 212-908-9179
Corporates
or
Kellie Geressy-Nilsen
Senior Director, +1 212-908-9123
Fitch Wire
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Media Relations, New York
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com