Among the
thorny issues surrounding the shutdown of Revel at the end of Labor Day weekend
is the fate of the $129 million utility plant that heats and cools the massive
money-losing Atlantic City casino-hotel and is crucial to preserving the
building itself.
It's not
unusual in bankruptcy for the prosaic matter of utility bills to capture a lot
of attention, because electricity and other utilities are essential to keeping
a bankrupt business going, giving it a chance to reorganize.
In the case
of Revel, there's a twist.
To build the
utility plant, which chills water for Revel's air-conditioning, provides hot
water, and distributes electricity to the 47-story tower, the plant's owner,
ACR Energy L.L.C., borrowed $118.6 million in the tax-exempt municipal-bond
market in 2011.
That $118.6
million in bond debt came unscathed through Revel's first bankruptcy last year,
which wiped out $1.23 billion in Wall Street debt. When Revel filed for its
second bankruptcy in June, the casino had $447 million in secured debt.
Conflict
over what happens to the municipal-bond debt is likely to be a stumbling block
in negotiations with prospective buyers. In practical terms, the bond debt is
additional Revel debt under a 20-year contract because the casino is ACR's only
customer.
The utility
plant is also an example - along with 13 restaurants and several entertainment
firms that will likely lose significant investments when Revel closes - of
potential collateral damage from the casino's colossal failure.
The
consequences of the restaurant closures are severe for employees and investors,
but of little significance for potential reuses of the structure. If the
utility plant goes out of service, the consequences would be disastrous.
In hot
weather, "if you shut down the electric utilities to the building, you're
going to get an instant build-up of heat and humidity inside the building, both
of which are terrible for finishes, equipment, and everything else that's
inside that building," said Greg Lucado, director of
construction-management programs at Philadelphia University. Mold would not be
far behind, he said.
That makes
it crucial to keep paying ACR, a joint venture of South Jersey Industries Inc.
of Folsom and DCO Energy L.L.C. of Mays Landing. Each paid $20 million in
equity to build the plant.
The fight is
over how much ACR will be paid.
Dan
Lockwood, a spokesman for publicly traded South Jersey Industries, declined to
say much this week about ACR's future.
"It's
too early to tell, and at this point we can't speculate on what could happen
with the property and the services we provide," Lockwood said.
Privately
held DCO Energy, which is South Jersey Industries' 50-50 partner in numerous
utility plants, did not respond to a request for comment.
Revel
started building the power plant in September 2008. By the time Revel's
original owners ran out of money and halted all construction in June 2010, they
had spent $42 million on the plant. Construction of it resumed in February
2011, with the money to continue coming from municipal bonds.
The nearly
$40 million equity infusion by ACR's owners went toward paying off the $42
million that Revel had sunk into what is now called the Inlet District Energy
Center.
Recognizing
that Revel was a risky proposition, ACR demanded a 15 percent return on its
equity in the first five years and 18 percent after that.
Revel's
fixed debt and equity payments to ACR total $20.1 million annually, plus $4
million annually for operations and maintenance. On top of that are variable
costs, for example, for chilled water, ranging from $50,000 to $450,000 a
month.
By contrast,
Borgata, including the Water Club - with twice as many hotel rooms and a larger
casino floor - had fixed payments of $11.7 million last year for its utility
plant.
This year,
Revel stopped making payments to ACR and owed nearly $10 million at the time of
the June bankruptcy, putting ACR under financial pressure.
Last week,
ACR notified bondholders that it had received a notice of default in June from
Bank of New York Mellon, the trustee for the bonds.
In
bankruptcy court, Revel has tried to separate fixed debt and equity payments to
ACR from the variable energy payments.
ACR has
fought to preserve the terms of the Revel contract, as in the 2013 bankruptcy,
when ACR was paid in full and the bond debt was kept.
This time
ACR is in a much tougher spot.
"There
is absolutely no assurance that the [contract] will be assumed" if a buyer
emerges, an ACR filing says.
Source: Philly.com
No comments:
Post a Comment