Financially troubled Resorts International said Monday that it has suspended interest payments on nearly $1 billion worth of bonds issued in connection with the company's acquisition and operation by Beverly Hills entertainer-financier Merv Griffin.
The interest payment suspension, which also affects Resorts' Resorts International Finance and Griffin Resorts Inc., will continue indefinitely, pending discussions with Resorts bondholders, who are to meet with Resorts officials on Sept. 19 in Atlantic City to review a recapitalization plan. As a result of the announcement, Moody's Investors Service Inc. said Monday that it has lowered the subordinated debt rating of Resorts and its subsidiaries.
"I knew that Resorts would be a challenge and that it would take time to improve its operations," Griffin wrote in a three-page letter sent to company bondholders on Monday. ". . . Obviously I am not pleased that Resorts finds itself in the position that it must suspend interest payments."
Resorts has $600 million in pre-existing bond debt and incurred $325 million in new debt when it was acquired for $365 million last November by Griffin following a protracted takeover fight with developer Donald J. Trump.
Recently the company has had problems selling assets, mostly Atlantic City real estate, and improving operations, officials said. Many other casinos in Atlantic City have also experienced financial difficulties recently due to fewer bettors in their facilities. But Resorts' financial woes have been compounded by the heavy debt service the company took on when it issued the bonds, whose original interest rates ranged from 10% to 16.624%.
"They (Resorts) will pay over $133 million in 1989 in debt service alone," said outspoken casino analyst Marvin B. Roffman of Janney Montgomery Scott Inc. in Philadelphia. Roffman added that the company has also been hurt by poor revenues.
In May, Griffin, a former talk show host and creator of such syndicated television game shows as "Wheel of Fortune" and "Jeopardy!" retained Salomon Bros. to devise a business plan to address Resorts' cash shortage.
Two weeks ago Resorts reported it lost $46.6 million on revenue of $110.2 million for the first six months of 1989, compared to a loss of $17.6 million on revenue of $122.3 million for the same period last year.
Bondholders are reportedly concerned that Resorts will propose a debt-for-equity exchange in which they will receive stock in exchange for forfeiting interest payments. The company could also propose a number of other options, experts say, including changing the interest rates or other terms of its bonds and other securities.
However, Edward Labaton, a New York lawyer who filed a class-action lawsuit in May on behalf of bondholder Peter Stuyvesant Ltd., told the Associated Press that the suspension of interest payments "merely confirms the concerns that were expressed in our complaint."
The lawsuit, which is still pending, alleges that Resorts' officers provided inflated company financial figures for a prospectus issued by Drexel Burnham Lambert Inc.
In his letter to bondholders, Griffin wrote to express confidence that Resorts "can become a valuable and successful company. I invested $50 million personally and have provided a letter of credit of $10 million based on that belief."
Besides appeasing bondholders, Resorts this fall faces scrutiny of its financial health by New Jersey gaming regulators in connection with hearings on changing the casino's provisional operating authority into a license.