Resorts International : Salomon Bros. to Advise Griffin’s Troubled Firm
Resorts International hired a new investment banker Friday to help with financial problems unearthed recently at the casino firm owned by Beverly Hills entertainer-financier Merv Griffin.
The Miami-based concern, which has gambling palaces in New Jersey and the Bahamas, said New York-based Salomon Bros. Inc. will assist “with the company’s analysis of its strategic alternatives.”
Investor concerns about Resorts have cropped up since the company disclosed cash flow troubles last month and indicated that earlier evaluations of some assets were overly optimistic. Resorts indicated it was considering selling some non-operating assets to help ease its difficulty.
Griffin, who produces the hit television game shows “Jeopardy” and “Wheel of Fortune,” bought out the public stockholders of Resorts last November, several months after acquiring financier Donald J. Trump’s controlling stake.
Although he was lauded initially for his deal with master deal-maker Trump, some analysts, as well as public investors who bought “junk bonds” issued for his acquisition, have been displaying some disenchantment.
The $325 million of bonds issued for his acquisition are central to a class-action lawsuit filed earlier this month by a New Jersey investment firm, Peter Stuyvesant Ltd.
As reported, the suit accused Griffin, the company and its former investment banker and underwriter, Drexel Burnham Lambert, of misrepresenting the company’s financial condition. A Resorts spokesman said Friday that the suit has not yet been served on the company but that the allegations are based on “erroneous” information.
Asked if the company has assigned blame in the situation, a Griffin representative said there was “no point in replaying the past.”
In February, New Jersey gaming regulators barred Drexel from continuing to work for the state’s casinos. Authorities voted for the temporary ban pending resolution of criminal charges against Drexel in a major Wall Street scandal and a ruling on its application for a state license.
Meanwhile, an outspoken casino analyst, Marvin Roffman of Janney Montgomery Scott in Philadelphia, said Friday:
“For over a year we’ve advised the sale (by investors) of Resorts’ bonds. We would not be enticed by interest rates of up to 22%.”
During Friday’s trading, four Drexel bond issues were priced by the market to yield between 16.1% and 22%. The original interest rates of the bonds range from 10% to 16.625%.
Cash Shortfall
Roffman said he has just completed a study of Resorts and estimated payments on its debt this year would total $133 million. Taking into account his own estimate of a $60-million cash flow and the company’s reported capital spending budget of $50 million, Roffman came up with a prediction of a $120-million cash shortfall in 1989.
The Griffin representative, who declined to be identified by name, conceded that the situation was “a little tougher” than the company originally expected but that “nobody’s pushing the panic button.” He said the company’s 10-K report, filed March 31 with the Securities and Exchange Commission, was “totally candid.”
Among other things, the report said management does not expect its cash flow to cover shortfalls in debt service requirements “for several years at the earliest “ and may never be sufficient to service the present level of debt.
However, it said the company has resources that it expects to use to offset a shortfall this year, without any major sales of real estate holdings. One of those resources is a lease on land it owns under the competing Showboat casino in Atlantic City.
