NJ legislators Implore AC casinos to Look Harder for Buyers

NEW YORK (The Deal) -- Three New Jersey legislators want the state's gaming regulator to pressure two Atlantic City casinos headed toward closure, Trump Plaza Hotel and Casino and Showboat Atlantic City, to stay open longer and look harder for buyers.

New Jersey Senator Jim Whelan, Assemblyman Vince Mazzeo, and Assemblyman Chris Brown sent the New Jersey Casino Control Commission a July 22 letter expressing concern about the potential loss of thousands of jobs in the seacoast city and requested that the regulator "direct" Showboat and Trump Plaza to remain open for four months and continue to seek buyers that could evaluate a variety of uses for those properties.

NJCCC Chairman Matthew Levinson didn't dismiss the legislators' request, noting in an email to The Deal that the commission is reviewing the letter.

"I certainly share the very serious concerns they raised about the welfare of workers and all of the businesses that will suffer if casino properties close their doors," Levinson wrote. "While our authority is broad in some respects and our ability to direct business decisions of the casinos is limited under the Casino Control Act, the current circumstances are unprecedented and present novel issues which we have been and will continue to review."

Showboat, which is owned by Caesars Entertainment (CZR), has received "a number of inquiries from interested parties," Caesars spokesman Gary Thompson said by phone Wednesday.

He explained that an internal group is reviewing the offers and determining their feasibility.

The N.J. legislators argued in their letter that two months wouldn't be enough time for potential buyers to conduct due diligence on the properties, evaluate potential uses for them and to estimate renovation costs and financing possibilities.

One source following the situation said most of the Showboat inquiries involve converting the property for non-gaming uses, such as a hotel, although there are offers that would continue Showboat's gaming operations.

Even if the commission decides that it has the authority to pressure Showboat and Trump Plaza to stay open, some sources are not convinced that an extra two months or so would make a difference.

"I think that the people who are interested in this market are well aware that these properties are for sale, and have been for sale for a long time," said Rob Heller, CEO of New York advisory firm Spectrum Gaming Capital. "I don't think a couple more months will help."

Heller questioned the idea that the casino control commission would have the authority to force the casinos to stay open. But he noted that the casinos' operators, Trump Entertainment Resorts and Caesars Entertainment, have other licenses in Atlantic City, which could provide leverage for the regulator to exert pressure.

Showboat and Trump Plaza sent out notices to their employees this month noting that, absent an alternative solution, they expect to close on Aug. 31 and Sept. 16, respectively.

"The casino companies moved to close these properties as quickly as possible, shifting customers to other casinos they own in Atlantic City, a process already underway," the letter said. "The public interest is to try to keep these properties open, ideally as casinos but if that is not possible than in some other capacity."

Caesars can direct Showboat customers toward its other Atlantic City properties, including Harrah's Resort Atlantic City, Caesars Atlantic City, and Bally's Atlantic City. Trump Entertainment Resorts can send its Trump Plaza customers to its last Atlantic City casino, Trump Taj Mahal.

The legislators are also worried about the eyesore effect of shuttered casinos.

"It would be a nightmare for Atlantic City to have a string of vacant properties along the Boardwalk like Atlantic Club," the letter said.

The assets of the Atlantic Club Casino Hotel were sold to Carl Icahn's Tropicana Atlantic City and Caesars Entertainment Operating Co. for $23.57 million in bankruptcy auctions that closed in January and February.

The way Caesars and Tropicana handled the Atlantic Club purchase, however, is a sore spot for the legislators.

The letter excoriates Caesars for putting a deed restriction on the property that limits it to non-gaming operations.

"Not only does this condition usurp the City of Atlantic City's legal authority to determine land use, the issue of economic concentration as stipulated in the enabling legislation needs to be examined," the letter said.

Caesars has 38% of the Atlantic City gaming market share, leading the letter writers to fume, "[N]ow they seek to limit future competition by deed restriction."

Whelan and Mazzeo didn't respond to requests for comment. Thompson, the Caesars spokesman, declined to comment on the letter.

Downey, Calif., real estate and construction firm Meruelo Group agreed to pay $20 million for Trump Plaza and invest an additional $100 million in renovations in February 2013, but the deal was scuttled by Icahn, the mortgage-holder, who thought the offer was too low.

A spokesman for Meruelo Group didn't return calls. Icahn was not available to comment, and a Trump Entertainment spokesman declined to comment.

Showboat and Trump Plaza aren't the only Atlantic City casinos seeking a buyer.

Revel AC, which operates the newest property in town, has a bankruptcy auction scheduled for Aug. 7. Bids are due Aug. 4, and the $2.4 billion casino has no stalking-horse bidder.

Revel made a second Chapter 11 bankruptcy filing in the U.S. Bankruptcy Court for the District of New Jersey in Camden on June 19.

"Certainly casino closings can alleviate- - at least in the near term - any supply and demand imbalances," Moody's Investors Service analyst Keith Foley said by phone Wednesday.

Atlantic City casinos have seen their market share decline as new properties have opened nearby in Pennsylvania and other northeastern states. However, when it comes to the long-term outlook, Foley fears that there is a secular downward trend industrywide.

Many within the gaming industry blamed worse-than-expected gaming revenues this winter on bad weather, but the numbers didn't pick up when spring and summer hit.

New Jersey's gaming revenues were down year-over-year 7.1% in March, 1.8% in April, 8.2% in May, and 1.7% in June, according to a July 17 Moody's report.

Moody's forecasted in a June 30 report that total gaming revenues reported by U.S. state gaming authorities will fall between 3% and 5% during the next 12 to 18 months, causing overall industry EBIT to decline between 4.5% and 7.5%.

Despite much talk over the years about adding non-gaming amenities to transform Atlantic City from a gaming-centric market to a destination resort, Foley hasn't seen much action on that front. He noted that about 85% of revenues in Atlantic City still come from gaming - and gaming revenues are steadily sinking.

"At the end of the day, what changed in Atlantic City to make that market more competitive?" he asked.

Last year, Atlantic City boasted 12 casinos. This year, following the non-gaming conversion of Atlantic Club and potential closures of Trump Plaza, Showboat, and Revel, that number could dwindle to eight.

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