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Gaming Guru

Joe Weinert
 

Atlantic City Roundup

17 February 2004

ATLANTIC CITY -- Donald Trump agreed to give up majority ownership of his gaming company in exchange for a $400 million cash infusion that would lead to a recapitalization of the struggling firm.

DLJ Merchant Banking Partners III, a unit of Credit Suisse First Boston, would become two-thirds owner of Trump Hotels & Casino Resorts. Trump would remain chairman, and he would remain chief executive for at least the time being.

The deal is contingent on Trump Hotels bondholders accepting a discount to face value on their $1.8 billion in high-interest mortgage notes. Analysts said that's likely to happen with the holders of $1.3 billion in notes that mature in two years and had been trading at about 80 cents on the dollar. The holders of $490 million in new notes that pay interest of 12.625 percent will likely require a premium to face value before selling, analysts said.

Trump said the equity infusion should facilitate a universal refinancing at a rate below 9 percent. Right now, debt is slowly killing his company. Last year 85 percent of its $255 million in cash flow was used to service debt, and the company indicated it might need a 30-day grace period to make a $73 million interest payment in May.

''We have good properties and we do well with them. We just pay too much interest. That's the only problem,'' Trump said.

If the deal is completed, Trump's beneficial stake in Trump Hotels would decline from 56 percent today to just over 20 percent, people familiar with the deal said. DLJ Merchant Banking Partners would control at least half of a new board of directors.

''Would I rather have a smaller stake in a strong company, or a larger stake in a company that's not nearly as strong?" Trump asked. ''I thought this was better for the company, because this becomes a very powerful company with this injection. Not only that, we essentially have a bank as a partner."

Trump Hotels announced the plan at the same time it reported a fourth-quarter net loss of $40.9 million, or $1.37 per share. Its net loss for the year was $87.3 million, or $3.39 per share.

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Tropicana plans to open its entire $245 million expansion project, including a garage that collapsed and killed four workers, in September.

The garage decks remain a gruesome sight, with the five concrete decks still hanging limply, but Aztar Corp. CEO Paul Rubeli left no doubt that it would open along with an integrated 502-room hotel tower and five-acre themed retail, dining and entertainment complex called The Quarter.

"We are going to open it 100 percent finished, complete, all at one time, and with all the tenants open, absolutely first class. We think that's the right way to do it," Rubeli said.

The Oct. 30 accident caused Tropicana to close one hotel tower and its older parking garage for a week, put its bus terminal in a tent, and reroute all traffic to the property.

Aztar filed insurance claims for $7 million in lost cash flow for November and December. The company said it plans to file claims or further business losses this year.

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The new Borgata Hotel Casino & Spa powered the Atlantic City casino industry to another month of strong revenue gains.

The dozen casinos won $336.5 million from gamblers in January, a 9.7 percent increase over the same month last year. It was the third gain of 9-plus percent in the last four months.

Borgata maintained its No. 2 standing in the revenue rankings, but closed the gap on market leader Bally's with a stronger showing in slot machines. Borgata remained No. 1 in table games revenue but moved from sixth place to third in slots on the strength of a promotion that was extended through February.

Borgata's success, though, came at a price to most other casinos, as same-store sales declined by 4.5 percent. Only Showboat reported a year-over-year revenue gain for the month, up 4.6 percent due to its 544-room hotel expansion last spring.

"When you have as big a fish as Borgata landing in the pond, it takes a little while for everything to equalize," Sands President Tom Davis said.

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Atlantic City's first casino endured another difficult quarter as it completes a major expansion.

Resorts Atlantic City's fourth-quarter cash flow declined 63 percent, to $1.7 million, on net revenue of $44 million, down 15 percent. Its net loss was $4.3 million.

President Audrey Oswell said the declines are due to the removal of a 166-room hotel tower in 2002 and the accompanying loss of up to 161 slot machines. Resorts removed the section of its property to make room for a lavish 400-room hotel expansion that's on time to open in June.

''The decline in numbers has more to do with capacity than competition or other factors,'' Oswell said, referring to the impact of Borgata Hotel Casino & Spa, which opened last summer.

(Joe Weinert covers the gaming industry for The Press of Atlantic City. He can be reached at jweinert@pressofac.com.)