Prices of the $850 million loan used to finance the construction of Revel Entertainment Group LLC, the newest casino in Atlantic City, fell to a record low as gambling revenue in the New Jersey seaside resort declined 8.9 percent in December.
The debt, due in 2017, fell 7.125 cents to 46.5 cents on the dollar yesterday, from 53.625 cents on Jan. 9, according to prices compiled by Bloomberg. The decline comes two weeks after the casino owner trying to avoid default obtained $150 million in financing from lenders.
Revel, needs to generate $28 million to $33 million a month in revenue to cover payments on its first-lien debt, according to a Dec. 10 research report by Unite Here, a labor union representing workers in industries such as hotel, gaming and food service. Revel reported total revenue, or casino win, of $9.9 million in December, according to the state Office of the Attorney General.
“It’s difficult to see a scenario in which this project doesn’t have a debt restructuring,” Ben Begleiter, a research analyst at Unite Here, said in a telephone interview. “The movement of stock and debt prices in the gaming industry in general is contingent on the performance of those monthly reports, and Revel didn’t bounce back from Hurricane Sandy the way Borgata did.”
The casino win for all of Atlantic City’s 12 gaming properties fell 8.9 percent last month, to $223.5 million, the New Jersey Attorney General’s office said yesterday in a statement. Revel ranked near the bottom, while the Borgata Hotel Casino & Spa was number one with a total casino win of $54 million.
Revel, which has been struggling to generate revenue to cover its interest costs since it opened last year, received the additional funding from lenders last month to help back its gaming projects. Including the new financing, Revel has about $1.5 billion of debt, according to data compiled by Bloomberg.
“In order for the property to be profitable it will need both a restructuring of the debt and a complete change in the disastrous management of the casino,” Begleiter said.
Maureen Siman, a spokeswoman for Revel, couldn’t immediately comment.
Hurricane Sandy, which hit New York and New Jersey as it came ashore Oct. 29, forced Atlantic City casinos to shut for five days, resulting in a 28 percent drop in November revenue, to $176.6 million. Revel posted November revenue of $6.2 million.
Construction on Revel stalled in 2009 after former owner Morgan Stanley abandoned the 1,800-room complex and lost more than $1 billion. Managers led by Chief Executive Officer Kevin DeSanctis took over the project, borrowed $1.15 billion to finish it and won a $261 million tax break from New Jersey Governor Chris Christie, who is trying to revitalize Atlantic City.
Revel last month amended its existing revolving credit line and added a $125 million term loan expiring in 2015 as well as increasing the revolver by $25 million, the Atlantic City, New Jersey-based company said in a Dec. 27 statement.
Revel used a portion of proceeds from the term debt, which pays interest at the higher of 10 percent or 9 percentage points more than the London interbank offered rate, to repay borrowings under the revolver, according to a regulatory filing. The transaction follows a deal last August that doubled a credit pact signed in 2011 to $100 million.
Moody’s Investors Service rates the company Caa2 and Standard & Poor’s has an equivalent CCC grade on Revel. Both ratings companies have Revel on review for downgrade.