Atlantic City has been struggling in recent years, and it remains unclear how the city’s problems will improve in the face of a deteriorating tax base. According to the Update Report of Governor’s Advisory Commission on New Jersey Gaming, Sports and Entertainment, total Atlantic City casino revenues fell from a peak of $5.2 billion in 2006 to just $2.9 billion in 2013, and are projected to be approximately $2.5 billion in 2014. Four of the city’s 12 casinos have closed this year, including Caesars Entertainment Corp.’s The Atlantic Club and Showboat Atlantic City, the Trump Plaza Hotel and Casino, and the Revel Casino Hotel. In addition, the Trump Taj Mahal Casino Hotel is slated to close in mid-December, although interested parties remain in discussions to keep the casino’s doors open. Carl Icahn-controlled companies have proposed to provide a $5 million financing facility while talks continue.
When Revel commenced its second bankruptcy case in June, it was unclear whether any purchasers would bid at the auction to resuscitate the overleveraged casino. Ultimately, two bidders emerged – Florida developer Glenn Straub and Brookfield Property Partners. The casino and hotel, which cost $2.4 billion to build, was sold to Brookfield for $110 million. While Revel was set to reopen following the sale, the future of the property is now up in the air, as Brookfield recently indicated it would terminate the purchase agreement in light of a disagreement with bondholders of the power plant that provides Revel’s utilities. The parties continue to discuss the matter in an attempt to reach a resolution.
Other casinos and their operators remain in distress, even if they have been able to skirt bankruptcy. Caesars Entertainment Corp. and its largest subsidiary have been sued by the subsidiary’s bondholder trustee, seeking the appointment of a receiver as Caesar’s allegedly continues to “run[…] the clock on the preference and fraudulent transfer look-back periods in advance of [the subsidiary’s] inevitable collapse into bankruptcy.” The trustee, who represents first lien bondholders collectively owed $1.25 billion, alleges that the subsidiary, which operates Caesars Atlantic City and Bally’s Atlantic City, has been drained of more than $4 billion in value. Caesars previously warned that the subsidiary may be forced to file for bankruptcy, faced with $18.4 billion of debt, $1.8 billion of which will become due in the next year. The plans for this subsidiary remain to be seen, as Caesars has floated a proposal to convert its largest subsidiary into a real estate investment trust as well as other proposals designed to placate key creditors.
Faced with continued uncertainty, including casino closures and distress in the industry, the Commission recommended the appointment of an “emergency manager” as well as various reforms. These include property tax reform, school reform, pension reform, regionalization or privatization and/or reduction of certain public services and reallocating certain financing. While Governor Chris Christie has yet to adopt the Commission’s recommendations, it is evident that drastic measures need to be taken, quickly, to revitalize the city.