he Toronto company this week said it's been accumulating Tropicana debt and expects to take control of the property this year, subject to regulatory approvals and finalization of the bankruptcy case.
The Tropicana investment will be made by the company's third large-capitalized private equity fund, Onex Partners III, in what Onex called "a distressed-for-control opportunity in the currently out-of-favor gaming sector."
Onex has accumulated - at a discount - more than us$ 200 million in principal of the senior debt of Tropicana Las Vegas Resort and Casino LLC, which is secured by the 1,850-room hotel and casino on the Las Vegas Strip. Onex didn't say how much it paid for that debt, which gave it a controlling interest.
On May 5, the bankruptcy plan of reorganization was confirmed for the Tropicana and its sister properties around the country. The reorganization calls for various owners to take over various assets around the country.
The Las Vegas Tropicana deal for Onex includes 34 acres of land surrounding the hotel-casino. Court papers show Onex will control three of the five seats on the newly reorganized Tropicana Las Vegas board of directors. As previously disclosed, former MGM Mirage executive Alex Yemenidjian will be the property's CEO and run the gaming operations.
The property's creditors say the resort on the Strip generated revenue of us$ 118.5 million in 2008, yielding cash flow of us$ 4.5 million and a net loss of us$ 4.7 million after expenses were deducted for depreciation and restructuring costs.
An analysis for the bankruptcy case found the property is worth from us$ 360 million to us$ 380 million. Tropicana's creditors said the new company would potentially have rights to any damages won in litigation against former Tropicana Entertainment owner William Yung III, whom they claim mismanaged the company. With this valuation, the main lenders in Las Vegas hope to recover up to 85 % of the debt outstanding on the property, compared to a projected 70 % if it was liquidated.
In a court filing, Scott Butera, who has been running the nationwide Tropicana Entertainment company as chief executive, said he supported the creditor-approved reorganization plan and management of the Las Vegas property by Yemenidjian and Onex executives.
"The plan furthers the goal of restructuring the ... debtors' obligations and businesses in a manner that makes economic and business sense and maximizes the value of their estates," he said, referring to the various corporate entities that control the Las Vegas Tropicana.
"The plan provides (the property) with a completely deleveraged capital structure. ... The reorganization ... contemplated in the plan ensures that the ... debtors will emerge from bankruptcy as a going concern with sound management and a capital structure that is predominantly equity with which to operate the Tropicana Las Vegas and provide livelihoods for their approximately 1,800 employees."
Besides praising Yemenidjian's experience at MGM Mirage, Butera said "Gerald Schwartz and Timothy Duncanson, chief executive officer and managing director of Onex Corp., respectively, are experienced investment professionals who have consistently studied casino gaming operations, with a strong focus on the Las Vegas market in particular."
Onex said in a regulatory filing: "The plan provides for the secured creditors, including Onex and the other holders of the us$ 440 million term loan, to receive 100 % of the equity in the Las Vegas property. ... We believe that the pro forma company will be well positioned for a turnaround and able to withstand the current downturn in the Las Vegas market as it will have no debt, slightly more than us$ 20 million in cash and a working capital facility to be put in place shortly."