Griffin to Reduce Role in Resorts to Delay Bankruptcy : Casinos: Bondholders are to become the company’s new majority owners under a sweeping financial reorganization.
Hollywood producer Merv Griffin has agreed to sharply reduce his ownership in Resorts International as part of a sweeping financial reorganization that temporarily delays bankruptcy for the ailing casino company, it was announced Monday.
At the heart of the plan is a proposal for Griffin to reduce his majority ownership in Resorts to 22% in exchange for a steep reduction in the company’s debt. The reorganization makes the bondholders the new majority owners of the company.
In a telephone interview, Griffin indicated that better days are ahead for Resorts, which owns casino hotels in Atlantic City and the Bahamas. “I’m going to work my butt off to get value for that company and it can be done,” he said.
Resorts also announced that it has set aside money to fund bondholder litigation against Donald J. Trump, the Manhattan real estate developer from whom Griffin bought Resorts last year.
Though not final, the agreement is a milestone in Griffin’s efforts to extricate himself from his severe difficulties as a casino operator.
He has owned the company for only a year, during which it has been continually buffeted by heavy losses and turmoil. Griffin, whose 24-year career as a television talk show host ended in 1986, presently owns 95% of Resorts.
The reorganization calls for bondholders to agree to sharp reductions in principal on the company’s long-term debt, which now has a face value of over $900 million.
Resorts bondholders would receive new debt valued at $400 million plus a 78% equity interest in a new, publicly traded company headed by Griffin. Griffin would be chairman of the new firm and have the power to pick a majority of its directors.
The agreement was reached after weeks of arduous negotiations, pitting Resorts against the committees representing the bondholders. The bondholders range from institutional investors to retirees.
The proposals will now go to the bondholders for their approval, a process that will likely take two to three months.
“There have been major concessions on all sides,” said Kaye Handley, an analyst for R. D. Smith & Co. in New York, an investment firm that specializes in distressed securities. “This was a sincere effort to come up with a capital structure that the company can afford.”
Handley added, however, that there are “significant dissensions” in the ranks of the unsecured bondholders. “It’s not at all clear that it will go through,” she said.
Wilbur Ross, investment adviser to the secured bondholders, said the creditors’ committees went along with the agreement largely because Griffin would still be in charge as chairman and chief stockholder.
“That was the single most important part of the deal,” said Ross, an investment banker for Rothschild Inc. in New York. “Normally, the creditors hate the management and want them thrown out.”
The plan also calls for Griffin to invest an additional $30 million in Resorts, but Resorts has also agreed to cancel a $50-million loan that it made to one of Griffin’s companies. The net effect is that Griffin’s personal investment in the firm will be reduced from $100 million to $90 million, officials close to the deal said.
Resorts officials are betting heavily that its fortunes will improve dramatically when Trump opens his $1-billion-plus Taj Mahal casino in Atlantic City next April. Resorts and the Taj are located next to one another at the eastern end of the city’s storied Boardwalk.
“We know that once Donald opens the Taj, it will bring hordes of people to that end of the Boardwalk,” Griffin said.
But Resorts’ unsecured bondholders are still likely to sue Trump, charging that his sale of Resorts to Griffin was a fraud and did not leave Resorts with enough assets to pay its debts. In a statement, Resorts said it would set aside an initial amount of $5 million to “fund litigation against Mr. Trump” and his companies. Any proceeds from the litigation will be distributed to the bondholders, the company said.
Trump answered with a statement of his own, saying Griffin should accept “full responsibility for Resorts’ current financial problems” and urged him not to pursue “wholly baseless and ultimately wasteful claims against me.”
Resorts’ restructuring is a complex plan that deals with six separate bond issues dating back 10 years. The first four were unsecured issues that were sold to a mix of small and large investors, while the last two issues were secured offerings sold mainly to institutional investors.
According to the plan, the secured bondholders will accept relatively minor reductions in principal in exchange for a 2.5% interest in Resorts’ new issue of common stock. The unsecured bondholders are being asked to take sharp reductions in principal in exchange for more than three-quarters of the stock.
The plan allows Resorts to avoid cash interest payments on the bonds for at least the first year, thus permitting the firm to continue with a much-needed $50-million renovation of its flagship property, an aged casino hotel in Atlantic City.
Only last Friday, Resorts announced that it was likely that its creditors would shortly file petitions to force the company to operate in bankruptcy court.
Though creditors did file those petitions on Sunday to preserve their legal claims against Trump, it should be several weeks or months before Resorts is legally forced to operate under the supervision of a bankruptcy judge.
And, creditors say, if the reorganization plan is swiftly approved, it is likely that Resorts’ stay in bankruptcy court will be short. The plan needs the approval of at least two-thirds of the bondholders as well as the consent of regulatory authorities in New Jersey and the Bahamas.
