ATLANTIC CITY, N.J. -- From the day it opened less than a year ago, Revel decided to break the rules.
The newest casino in Atlantic City banned smoking, didn't offer a buffet, turned its back on bus-riding day trippers and focused on the upscale leisure traveler more than the slot-playing senior citizen.
But Monday, the $2.4 billion resort found it could not break the law of supply and demand as it filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Camden.
Dragged down by a combination of bad timing (It started construction just before the U.S. economy cratered and was too far along to scrap when things were at their worst.) and business decisions that flew in the face of what had previously worked when things were going well for Atlantic City, the casino-hotel that was viewed as the resort's best hope finds itself in the same place that many of the city's other casinos have been or have barely escaped.
In filings with securities regulators last week, Revel said it was worth no more than $450 million, and it could take four years to become fully profitable.
A majority of Revel's lenders has already signed off on the so-called pre-packaged bankruptcy, which the company hopes to speed through bankruptcy court, emerging by early summer. It plans to continue normal operations, paying employees and vendors, and predicts guests will not notice anything different.
"Backed by overwhelming lender support, we remain on track to complete our financial restructuring ahead of the critical summer season," said Jeffrey Hartmann, Revel's interim CEO. `We will emerge from this recapitalization positioned for long-term success, with the financial capacity to pursue our amenity enhancement opportunities, and the ability to continue providing our guests with a signature Revel experience."
The deal will wipe out 82 percent of Revel's $1.5 billion in debt by converting it into equity for lenders. That will leave the company, Revel AC, with a much more manageable $272 million in debt.
Some of its lenders will provide $250 million in debtor-in-possession financing, approximately $42 million of which constitutes new money commitments.
In addition, Revel's lenders have committed $335 million in exit financing, which consists of a $75 million revolver and $260 million term loan. The proceeds of the exit financing will be used to provide Revel with additional working capital, pay for some capital expenditures, repay the debtor-in-possession financing and pay expenses related to the restructuring when Revel emerges from bankruptcy court, the company said.
Revel opened April 2 with sky-high hopes and the expectation of many in what was then the nation's second-largest gambling market that it could help turn around Atlantic City's sagging fortunes. But Revel has lagged near the bottom of the city's 12 casinos in terms of gambling revenue, and Atlantic City has since lost its position as the nation's No. 2 market to Pennsylvania.
Steve Norton, a casino analyst who was vice president of Resorts when it opened as the first U.S. casino outside Nevada in 1978, said Revel has to reconsider its no-smoking policy and reorient its marketing more to casino players instead of conventioneers. It also is hurt by being a stand-alone property unaffiliated with a larger parent company with an extensive multistate database of customers from which to draw, Norton said.
And he also said Revel needs to get real when it comes to food and hotel room prices, which are higher than those of most of its competition. Indeed, just a few hours before filing the bankruptcy petition Monday, Revel sent out a marketing email offering hotel rooms starting at $129 a night during the week, more in line with its lower-cost competitors.
"While this would not be a problem for the convention trades, where the attendee is on an expense account, it can be a big negative for the frequent independent traveler, overnight guest and the day tripper, that provides much of Atlantic City's customer base," Norton said. "Revel doesn't have the level of low priced food options like every other Atlantic City casino."
Norton said Revel was hurt by many factors, including the decision not to build a second hotel tower when the project ran out of money halfway through construction. He also specifically absolved former CEO Kevin DeSanctis of responsibility for its problems. DeSanctis is staying with a corporate affiliate to work on amenity projects for the resort.
"The substantial construction cost of Revel, the loss of 1,900 of their rooms, the general collapse of the economy, the U.S. unemployment problem and new gaming options in Pennsylvania and New York -- all causing a 40 percent decline in casino revenues -- are the primary reasons for Revel's failure, not Kevin DeSanctis," Norton said. "And without him, the property would still be an empty shell like Boyd's Echelon Place or the Fontainebleau, on the Vegas Strip."
Steven Smith, a partner specializing in restructuring and insolvency with the law firm Edwards Wildman Palmer, said the key question is how a bankruptcy court judge reacts to the preplanned agreement.
"Revel expects that its operations will continue post-bankruptcy without any interruptions," he said. "And by negotiating with its key creditor constituents prepetition, Revel hopes to minimize its stay in Chapter 11 land to just a couple of months and hopes to emerge in time for the Memorial Day weekend holiday with a severely deleveraged balance sheet."
Revel says it plans to continue its existing player loyalty programs, promotions, dining options and entertainment shows, including sold-out concerts by Alicia Keys and Rihanna.
It has 1,399 hotel rooms and a 130,000-square-foot casino with more than 2,400 slot machines and 130 table games.