Resorts Bondholders Asked to Accept Cut in Interest, Principal

Resorts International Inc., the money-losing casino company owned by Hollywood producer Merv Griffin, unveiled a sweeping financial reorganization plan Tuesday designed to give the troubled firm several years of breathing room while it attempts to reverse its downhill slide.

At the heart of the plan are proposals for the firm’s bondholders to accept steep reductions in the interest payments on their debt securities as well as some reductions in principal.

Bondholders reacted angrily and emotionally to the proposed reorganization, including one who attacked Griffin “because he doesn’t know what he’s doing.” Bondholders were particularly incensed that Griffin offered to put no new capital into the company.

Resorts executives said the plan is an attempt to “spread out the pain” evenly among the bondholders and keep the casino company out of bankruptcy court.

Company officials say a bankruptcy filing might mean that the firm’s Atlantic City casino could lose its license, prompting the value of the company to plunge. A bankruptcy filing, which could be initiated by disgruntled bondholders, would be “catastrophic,” Resorts officials said.

If approved, the reorganization plan would give some bondholders--the unsecured ones--an equity interest of up to 25% in Resorts.

Griffin Not Present

Resorts is now 95% owned by Griffin, who acquired the firm last year following a long takeover battle with New York real estate developer Donald J. Trump.

The proposed reorganization was unveiled in a meeting with bondholders at the Resorts hotel here, the grand old structure that has fallen on hard times in the past six years.

Griffin, though he was in Atlantic City last week as a judge for the Miss America contest, did not attend the meeting. He was back in Los Angeles negotiating a deal to produce a television game show based on the Atlantic City board game Monopoly.

Griffin, creator of such game shows as “Jeopardy” and “Wheel of Fortune,” wants to televise the show from the Resorts casino as a means of generating new business.

A key part of the reorganization would allow Resorts, which also owns hotels and a casino in the Bahamas, to temporarily save $130 million a year in cash interest payments on long-term debts of more than $900 million.

Last month, Resorts announced that it had suspended payments on those bonds, marking one of the largest bond moratoriums of the year.

The bondholders are a diverse group ranging from elderly investors to pension funds. A payment suspension covers six different bond issues, secured and unsecured, at interest rates ranging from 10% to 16.6%.

The meeting, which was supposed to be closed to the press, was marked by sharp criticism of Resorts’ management and advisers.

One bondholder, who identified himself as Arthur Friedman, a certified public accountant, quoted Griffin as saying the company’s major assets are worth as much as $900 million.

“Why aren’t you actively pursuing the sale of this company?” Friedman asked. “My father taught me you pay your bills before you get a salary.”

The unsecured bondholders were asked to take reductions in their principal to as low as $571 for each $1,000 in face value as well as interest rate reductions to as low as 7%.

Would Cut Debt

But the unsecured holders would also receive a one-time cash payment of as much as $98 for each $1,000 in face value as well as up to 16 shares of common stock. The cash payment is expected to total $54 million.

The secured bondholders, mostly institutions that bought the issues last year through underwriter Drexel Burnham Lambert, would see their interest rates cut to 10% from nearly 14%. The face value of their bonds, however, would not be reduced.

The effect of the exchange would reduce the face value of Resorts’ long-term debt to about $703 million from $925 million.

The reorganization would also allow Resorts to pay interest on the new bonds in the form of new debt, not cash, for three to five years. This would allow the firm to save much-needed cash while it bolsters its customer base, raises employee morale and completes its current $40-million renovation of the Atlantic City hotel.

Resorts officials said the reorganization plan needs the approval of 90% of the bondholders in each of the six offerings before the plan will be put into effect. The proposed reorganization has been submitted for review to the Securities and Exchange Commission.