Griffin Acts to Stave Off Bankruptcy Suit : Restructuring: Entertainer reduces majority interest in Resorts International to placate bondholders and avert a long court battle.
Entertainer Merv Griffin, faced with the likelihood that bondholders would force Resorts International Inc. into bankruptcy reorganization, today announced a restructuring plan that would reduce his majority interest in the company.
In return for his diminished ownership, bondholders would pledge not to embroil the company in a long bankruptcy battle.
The tentative agreement is aimed at preventing a protracted court case that could destroy the gaming company and leave its assets in the hands of a bankruptcy court.
Bondholders filed a lawsuit Sunday night in U.S. Bankruptcy Court in Camden, N.J., attempting to force the company to reorganize under Chapter 11 of the federal bankruptcy code, said Alison MacDonald, a spokeswoman for Resorts.
Bondholders had to file for bankruptcy if they wanted to protect their right to sue Griffin. The bondholders claim Griffin wrongly withdrew $50 million of the $100 million he invested in buying Resorts.
Resorts officials, who asked not to be identified, said Griffin had agreed to a deal to guarantee that any court proceedings would be friendly and make survival of the company the ultimate goal.
The deal would leave Griffin with 22% of the gaming company’s equity. He would also retain the chairman’s job and the right to appoint a majority of directors.
In August, the company suspended interest payments on $925 million in bonds and the following month announced a restructuring plan aimed at preventing a bankruptcy filing.
Bondholders attacked the plan and have since split into two groups, one holding $600 million of subordinated unsecured debt and another representing $325 million of senior secured debt.
Those senior secured bondholders will receive $187.5 million in new notes with a four-year term bearing interest of 6% in the first year, 9% in the second year, 12% in the third year and 15% in the final year, according to the restructuring plan. They also will receive 2.5% of the Resorts stock.
Rent payments on property owned by the Showboat Hotel and Casino will also finance $100 million in new 10-year bonds to those bondholders.
Holders of Resorts’ highest paying bonds, about 17% due in the year 2004, will receive 32.4% of the Resorts shares, among other changes.
The remaining bondholders will receive 43.1% of the recapitalized common stock.
The restructuring negotiations had a legal deadline of Wednesday, the anniversary of Griffin’s victory over Donald Trump in a struggle for control of Resorts. Under federal law, bondholders have one year to force Resorts into bankruptcy if they want to claim that they were defrauded at the time the casino changed hands.
Many analysts think Griffin paid an exorbitant price for Resorts, the oldest casino on the Boardwalk. Trump ended up with the unfinished Taj Mahal mega-casino for $230 million, less than half the $500 million Resorts poured into its construction.
