NEW YORK (The Deal) -- The string of bad luck of casino operator Revel AC has continued.
The Atlantic City, N.J., debtor today filed a cross motion hoping to terminate a deal with Polo North Country Club, alleging the buyer failed to close the $95.4 million deal by a midnight deadline. The collapse of the transaction would follow the implosion of an earlier $110 million sale to a unit of Brookfield Property Partners (BPY) - Get Report in November.
In its Tuesday court filing, the debtor said Polo North was required to close the deal within two business days of the completion of certain conditions, which occurred Jan. 20. An asset purchase agreement provided an outside date of Monday by when a deal had to be closed -- if it had not, Revel had the right to terminate the sale.
In a Tuesday statement, Revel said, "Based on Polo North's numerous breaches of the asset purchase agreement, including Polo North's failure to close by the outside date of Feb. 9, the debtors have delivered a termination notice to Polo North and will seek to retain Polo North's $10 million deposit as provided for in the agreement and the bankruptcy court orders."
Polo North, for its part, on Sunday requested the closing date deadline be extended until a slew of issues with the deal could be resolved.
In the filing, the buyer said utility provider ACR Energy Partners, Idea Boardwalk and Revel's restaurant tenants were claiming possessory rights, which would change the terms of the deal. The buyer maintained it had been set to purchase Revel's assets free and clear of any tenant possessory rights.
"Obviously, this is a significant issue that will greatly impact Polo North's ability to operate going forward," the company said in court papers.
Polo North also said ACR has threatened to cut off utility services to Revel, which would be "detrimental" to the assets.
Additionally, the buyer asserted a sale closing could not take place before its had received its gaming approvals, which are pending.
"Polo North cannot and should not be expected to close on a sale when it has no idea what it is purchasing," the company said. "Polo North would seriously have to consider walking away from this undefined transaction and then fight for the return of its deposit through the various courts as the tenants are currently doing, as debtor is not able to deliver what was agreed either by the APA or the agreed sale order language. Polo North would prefer to consummate this transaction, when it is defined. This would allow Polo North to proceed with the activities it envisions to put at least 4,000 people back to work, begin the transformation of Atlantic City, aid in the creation of a renaissance of this deteriorating urban center and take steps serving the public interest. Polo North cannot do any of this, however, when there is so much doubt as to the potential impediments to the proper use of this structure."
In response, Revel said the assertions were "incorrect and a clear misreading of the Polo North APA." The buyer, Revel alleged, was attempting "to manufacture closing conditions that simply do not exist under such agreement."
A hearing on the extension motion is set for Wednesday in the U.S. Bankruptcy Court for the District of New Jersey in Camden.
Judge Gloria M. Burns on Jan. 5 had sanctioned the sale to backup bidder Polo — in spite of protests from the buyer itself.
Burns maintained that "the sale process was fair" over the objections of Polo, which had sought an $8.4 million discount on the deal for what it called a flawed auction process. Polo is controlled by Florida developer Glenn Straub.
On Jan. 15 and 16, ACR, Idea Boardwalk and Revel tenants appealed the sale order because they objected to the deal terms. That same week, the parties also moved for a stay of the sale pending appeal in the U.S. District Court for the District of New Jersey.
On Jan. 21, the district court denied the stay motion, allowing the sale to move forward.
"With the stay of the sale expired, the debtors continued to encourage Polo North to proceed with closing the sale," Revel said in its Tuesday filing. The debtor said in court papers that its counsel attempted to contact Polo's counsel for review and comment, without any success.
On Jan. 22, Idea filed an application requesting the district court certify the Polo sale appeal directly to the U.S. Court of Appeals for the 3rd Circuit. Idea, which spent $16 million to construct a bar and entertainment venues in the Atlantic City casino, wanted to protect its property rights. Four days later, the district court denied the certification request.
On Jan. 28, Idea filed an appeal of its stay denial order with the court of appeals, which granted a temporary stay of the sale order pending its final determination of IDEA's appeal.
On Friday, the appeals court entered an order reversing the district court's stay denial order and remanding the case to the district court for an order granting a limited stay of the portion of the sale that pertained to Idea.
The sale could have moved forward on every other respect.
The battle this week is the latest in Revel's sale process.
In a Dec. 24 court filing, Polo contended the cash price for Revel's assets should be $87 million, not the $95.4 million it agreed to pay at an auction for the casino "because of significant and numerous improprieties in the bid process." The company previously had criticized the process.
Polo also said it should receive a $3 million credit on the purchase price represented by the breakup fee it earned when it was beat out at auction by Brookfield US Holdings. Polo also noted the bankruptcy estate was still benefiting by keeping an $11 million deposit from Brookfield.
Polo has alleged the auction process was "deficient" and "adversely affected the estate's ability to receive the highest and best bid for the property."
In court papers, Revel said Polo continued to level "baseless objections with respect to the auction process in hopes of purchasing [Revel's] assets at an undeserved discount."
The debtor maintained that any questions related to the sale procedures had been resolved during the lengthy auction process. Burns on Oct. 20 previously ruled that Revel wouldn't be subject to sanctions for the auction process.
The debtor's casino had been set to go to Brookfield until a representative of the buyer on Nov. 19 announced it wouldn't be moving forward with its acquisition. The announcement came nine days before the deal was set to close.
Sources said at the time that the deal fell apart because Brookfield was spooked by the situation involving ACR Energy Partners, a joint venture between South Jersey Industries (SJI) - Get Report and DCO Energy, whose power plant provides Revel, its only customer, with air conditioning, hot water and electricity. ACR's bondholders, owed $118 million, have refused to renegotiate debt related to the JV's plant, casting doubt on its future operation.
Revel won approval of the Brookfield deal on Oct. 7. Brookfield is the owner of the Hard Rock in Las Vegas and the Atlantis Paradise Island in the Bahamas.
The debtor previously canceled two auctions for the property -- scheduled for Aug. 7 and Aug. 14 -- despite receiving multiple offers for the real estate. The casino subsequently closed its doors on Sept. 2.
Revel filed for Chapter 11 on June 19, the debtor's second petition in 15 months. Revel previously made a prepackaged Chapter 11 petition on March 25, 2013, and exited on May 21, 2013.
Burns on Dec. 30 approved a $26 million tax settlement between the city of Atlantic City and Revel. The deal cut the debtor's tax bill by about $7 million. (Tax collectors did not receive any offers for Revel's tax debt at an early December auction.)
Revel's resort, which opened on April 2, 2012, has more than 1,800 ocean view rooms, 2,000 slot machines and about 100 table games. It acquired the unfinished property from affiliates of Morgan Stanley in February 2011 after nearly four years of construction.
Revel listed $486.92 million in assets and $476.13 million in liabilities in court papers.
Debtor counsel John K. Cunningham of White & Case did not return calls.
Counsel for Polo, Stuart J. Moskovitz of the Law Offices of Stuart J. Moskovitz, could not be reached for comment Tuesday.
Richard S. Kebrdle and Kevin M. McGill of White & Case and Raymond M. Patella, John H. Strock and Michael J. Viscount Jr. of Fox Rothschild are also debtor counsel. Patella could not immediately be reached.
Michael D. Sirota and Warren A. Usatine of Cole, Schotz, Meisel, Forman & Leonard, counsel to the official committee of unsecured creditors, also could not be reached. A&M Industrial, ACR, Atlantic City Alliance, Media & Marketing Group and National Union Fire Insurance Co. of Pittsburgh, Pa., sit on the committee.
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