State to casino: Trop dead

April 2, 2008 7:05:08 PM PDT
If the former owners of the Tropicana Casino and Resort go bankrupt, they brought it on themselves. That was the gist of a ruling Wednesday by the state Casino Control Commission, which refused to help Tropicana Entertainment LLC avoid being forced into bankruptcy as a result of having lost its casino license in December.

The commission also issued a series of surprising public rebukes to a retired state Supreme Court justice it appointed to oversee the Tropicana until it can be sold.

The commission had stripped a Tropicana corporate affiliate of its casino license after less than a year of operation here, determining that it was incapable of running the type of first-class facility required by state law.

In doing so, the commission also transferred legal ownership of the casino-hotel to a trustee. Because the company no longer legally owns the property, it is in danger of defaulting on $960 million worth of bonds.

A default could force Tropicana Entertainment into a bankruptcy that could affect the Tropicana in Atlantic City, officials said Wednesday. Among them were the trustee, retired state Supreme Court Justice Gary Stein, and attorneys for investors who bought the Tropicana bonds and could demand to be paid as early as April 20.

For that reason, Stein asked the commission to return legal ownership of the Tropicana back to a corporate affiliate, Adamar of New Jersey. That, he said, would prevent it from defaulting on its bonds and possibly being forced into insolvency, which would make it harder to sell the casino.

But the commission refused, saying it would not be drawn into a private financial dispute between a business and its investors. Chairwoman Linda Kassekert said William J. Yung III, who owns Tropicana Entertainment and other corporate affiliates, can try to work out a negotiated settlement with creditors.

"We want to see this property sold and we don't want to see a default," said Commission Chairwoman Linda Kassekert. "But isn't it up to Mr. Yung to cure his own default?"

Kassekert said the commission cannot worry about whether Tropicana Entertainment might be forced into bankruptcy; she said it is required to follow state casino law, which does not allow an unlicensed company to own a casino, for however short a period.

Several other commissioners also said they could not abide returning ownership of the Tropicana to a company they ran out of town last year.

"If we found a company not sufficient to hold a gaming license in New Jersey, they are for all intents and purposes a bad company," said Commissioner Michael Epps.

"We found Adamar not qualified to own a casino," added Commissioner Michael Fedorko. "If we give them back their assets, that just doesn't sit right in my mind."

Stein had argued that even though the Tropicana would regain legal ownership of the casino-hotel, he would still control it. He also said the taint of a bankruptcy would scare away badly needed customers from the casino-hotel, which is still struggling to recover from the damage it suffered under Yung's ownership.

The company declined comment Wednesday.

Ed Weisfelner, an attorney for the Wilmington, Del.-based bondholders, said they would prefer to try to negotiate a deal with Tropicana Entertainment, but could not rule out trying to force a bankruptcy if that fails.

The bondholders have already won one round in a legal battle with Tropicana in a Delaware court, where a judge upheld their claim that Tropicana's loss of legal ownership constitutes a default on the bonds that could lead to them becoming payable almost immediately.

"We remain cautiously optimistic that sensible people will act sensibly," Weisfelner said.

In addition to rejecting Stein's request to help the Tropicana, the commission also dealt the retired justice a series of rebukes. They repeatedly said he had wrongly interpreted the law, prohibited him from making any other applications to the commission without first getting approval from Kassekert, questioned some of the $104,675 in bills his law firm submitted for work in February, and even told him that if he wishes to continue hiring a car service to take him to Atlantic City from his Hackensack office, he must pay for it himself.

Stein declined comment after the meeting.