Credit Squeezes Tropicana in Las Vegas Where Elvis Can't Help

June 16 (Bloomberg) -- Outside the Tropicana Resort & Casino in Las Vegas, doorman Steve Wagner asks guests if they enjoyed their stay. Half complain, he says, citing everything from dirty rooms to insects.

``Boy, this place needs to go,'' said Wagner, 48, who has spent half his life at the once mob-linked property, which opened in 1957 and was hailed by the Saturday Evening Post as the ``Tiffany of the Strip.'' ``Nothing that exists in this hotel should probably stay.''

``The Trop,'' now in Chapter 11 bankruptcy along with eight other properties owned by Columbia Sussex Corp. founder William J. Yung III, is caught in a credit squeeze. A $2.5 billion plan to turn the Tropicana into the world's largest resort casino was canceled last year after tightened lending markets made it harder to raise funds. Now a lack of financing for potential buyers makes a sale infeasible, said Scott Butera, chief executive officer of Tropicana Entertainment LLC.

``Unfortunately, the Tropicana's hands are tied,'' said Daniel Y. Rubin, a lawyer at O'Melveny & Myers in New York who has represented MGM Mirage's controlling stakeholder, Kirk Kerkorian. ``Making an investment to build a new casino probably feels a lot like making an investment in subprime mortgages, in terms of speculation that isn't paying off.''

Yung's problems stem from his agreement to buy the Tropicana's former parent, Aztar Corp., at the top of the real estate market in 2006. Then, last December, he lost his license to operate his biggest gaming asset, the Tropicana Atlantic City, after New Jersey gaming officials found him lacking in ``business ability'' and ``integrity.''

The New Jersey finding is on appeal. Nevada's Gaming Control Board is conducting a separate investigation of the Trop, said gaming board member Randall Sayre.

Las Vegas `Hangover'

On June 6 Yung resigned as Tropicana Entertainment's CEO after lenders and bondholders demanded his ouster. The Kentucky businessman, 67, declined to comment about his resignation or anything related to Tropicana, said spokesman Hud Englehart. Yung, who was replaced by Butera, remains on the five-member board, which now has three outside directors. Next month a bankruptcy court will hold a three-day hearing to decide whether he should be removed from that position as well.

Falling real estate values and a drying up of credit for development projects are hurting business and consumer spending, leaving Las Vegas feeling like it has a ``hangover'' after being the fastest-growing major U.S. metropolitan area from 1986 to 2005, said Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas.

It had the biggest house-price drop of any U.S. city during the first quarter, at 26 percent. Convention revenue fell 7.1 percent to $2.86 billion in the same period, and gaming revenue on the Strip slipped 3 percent to $1.67 billion.

Canceled Projects

More than $30 billion in new residential and gaming projects, including the Tropicana rebuilding plan and the Crown Las Vegas skyscraper, aren't going forward because companies can't get financing, said Las Vegas-based analyst William Lerner of Deutsche Bank AG.

Tight credit also is keeping older sites like the Imperial Palace and the Riviera Hotel and Casino from accessing capital they need to upgrade facilities and stay competitive, Lerner said.

``The problem is we've not yet seen the full impact of the credit crunch,'' he said. He declined to comment on Deutsche Bank's role in financing the $3.8 billion Cosmopolitan Resort & Casino, which fell into foreclosure during construction.

`Bad to Worse'

Yung, who turned Crestview Hills, Kentucky-based Columbia Sussex into the largest U.S. licensee of full-service Marriott hotels, agreed to buy Aztar for about $2 billion and the assumption of $676 million in debt. The deal was financed with $3.1 billion in credit facilities and notes arranged by Credit Suisse Group AG.

Yung planned to redevelop the 34-acre Las Vegas Tropicana by 2010, turning it into a sprawling complex with five towers, 10,000 rooms, and 900,000 square feet of casino, retail and convention space. The makeover was called off last year because of rising construction costs and difficult debt markets, Englehart said.

Tropicana Entertainment, the gaming affiliate of Columbia Sussex created to operate the resort, saw its debt leverage go ``from bad to worse'' in 2007 because of falling revenue and real estate values, and the inability to refinance or get capital, said Butera, who helped reorganize Trump Hotels & Casino Resorts Inc. out of bankruptcy.

Cutting Jobs

``The acquisition was completed at very frothy prices, and we'd gotten very favorable financing at the time,'' said Butera, who joined the company in March. Tropicana Entertainment ``was unable to support the significant debt leverage, and that's what led to the downfall of this company.''

Tropicana started cutting jobs to ``sustain the company's cash flow,'' he said.

New Jersey regulators concluded in December that Yung and Tropicana Entertainment, having cut the Atlantic City workforce by 20 percent, were unable to run a first-class casino. They appointed a former New Jersey judge to run the property, which had accounted for 43 percent of the company's cash flow, and seek a new owner.

The decision triggered defaults on obligations to some creditors. On May 5, Tropicana Entertainment filed for bankruptcy protection, listing $2.8 billion in assets and $2.4 billion in debts. It won subsequent court permission to borrow as much as $67 million to continue operating.

``The current plan is to invest in the asset and re-evaluate down the road,'' Butera said. Closing the Las Vegas hotel isn't an option, and ``everybody is of the strong opinion that it's a difficult time to buy or sell anything.''

Elvis and Ali

Financed in the 1950s by mobsters such as Frank Costello and featured in the Elvis Presley film ``Viva Las Vegas,'' the once world-famous Trop is now overshadowed by the nearby MGM Grand's roaring lion and the New York New York Hotel & Casino, with its roller coaster and Statue of Liberty replica. The red carpet and chandelier that used to greet celebrities like boxer Muhammad Ali and actress Sophia Loren are gone, replaced by decorative mermaids and clamshells.

As many as 46 percent of the Tropicana's food and beverage, housekeeping, bellhop and porter jobs have been eliminated since 2007, the most of any hotel on the Strip, said D. Taylor, secretary and treasurer of Local 226 of the Culinary Workers Union, which represents employees at the Tropicana.

Unattended Luggage

``The consensus view is that the owner cut expenses too much, and it hurt customer service,'' said Peggy Holloway, vice president and senior credit officer at Moody's Investors Service in New York. ``So it's suffering from under-management.''

Piles of guest luggage go unattended along a curb during peak hours, said Wagner, the doorman. Buckets are placed on the casino floor when it rains to catch water from a leaky roof, and restroom attendants bring their own plungers to relieve clogged toilets, he and other workers say.

The hotel continues to lure customers by offering some of the cheapest rooms in town, selling on the Internet for as little as $50 for three nights. Its occupancy rate is about 75 to 80 percent, said Mike Denicoli, who mans a time-share sales kiosk near the lobby.

``Everybody was so ecstatic about the bankruptcy filing, because there's a lot of animosity between the new ownership and employees,'' said Wagner, as he stood outside the Trop's front doors. ``We were hoping a new company would come in.''

To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net