Resorts World Catskills' owner considers prepackaged bankruptcy

Empire Resorts, parent company of Resorts World Catskills casino in New York State, recorded a second-quarter 2019 loss of $35.96 million on revenue of $60.07 million and operating expenses of $79.94 million, according to a Friday financial filing.

The company, which owns the Town of Thompson casino and the Monticello Raceway horse track, cautioned that it’s considering a voluntary, prepackaged Chapter 11 bankruptcy, according to a Friday Securities and Exchange Commission filing, as reported by Times Herald-Record.

The warning follows six of months of 2019 losses totaling $73.5 million. From the casino’s February 8, 2018 opening through the end of last June, Empire has reported $211.5 million in losses, an average of roughly $12.4 million per month.

The losses are due to gross gaming revenues that lagged 45 percent below company projections in year-one alone, in a Northeast market over-saturated with gambling options. Plus, the company is over-leveraged. It paid $35.86 million in interest, through the first six months of 2019, on the $487.5 million debt load it took on to build the $928 million casino.

If the company seeks a prepackaged bankruptcy, it would be to smooth and accelerate a Chapter 11 filing. Empire and its creditors would try to agree on a financial reorganization plan before the company submitted it for court approval. A prepackaged bankruptcy would be Empire’s only option to avoid breaching its debt covenants if it pursues Chapter 11 protection, the company stated in its Friday filing.

If the company can’t restructure its debt and other obligations, “we may not have enough cash and working capital to fund the operations,” the company warned. “As a result, we may be required to seek to implement an in-court proceeding under Chapter 11 of the United States Bankruptcy Code” to cover expenses for the casino, its hotels and future golf course.

On July 25, Malaysian-Chinese casino magnate K.T. Lim, whose family trust Kien Huat Realty owns 86 percent of Empire, said he wants to buy the company’s outstanding shares to save it. Such an acquisition by Kien Huat would make bankruptcy, and any accompanying debt reduction, easier because Empire’s debt holders would be negotiating with just a Lim-controlled business entity.

On Monday last week, Lim revealed that he wants to take control of Empire by teaming with his other casino company, Genting Malaysia, to form a holding company that would buy up Empire’s stock for $9.74 per share. Via Kien Huat, Lim’s family is the largest shareholder in Genting Malaysia, a giant, publicly traded, transnational casino and entertainment company. Lim also serves as Genting Malaysia’s chairman and CEO.

Genting Malaysia agreed to spend $128.6 million to buy 46 percent of the Lim family’s Empire stake or 35 percent of Empire’s voting power on a fully diluted basis after the conversion of all preferred stock into common stock. Pending the sale’s closure, a new Genting Malaysia-Kien Huat holding company will make its buyout offer to Empire’s remaining shareholders.

In a July 25 statement, Stefan Friedman, a spokesman for Genting and Lim, reaffirmed Lim’s “strong commitment” to the casino, adding that “Mr. Lim believes in the long-term potential of Resorts Word Casino Catskills.”

Besides Empire struggling with debt and heavy gaming competition, gaming experts have traced the casino’s problems to its location. State leaders pitched the 2013 effort to authorize four non-Indian casinos as a way to bring jobs and investment to economically disadvantaged upstate areas. And the casino has been successful in that regard, employing 1,756 full-time and 100 part-time employees as of the end of 2018.

But if state leaders prioritized economic viability, they would have allowed one or two casinos closer to New York City, not four casinos in cash-strapped, customer-short upstate areas with limited demand and spending power, according to gaming experts cited by the Times Herald-Record.

One way Lim hopes to turnaround Empire’s fortunes is by bringing more electronic gaming nearer to the city. Genting’s electronic slots at Aqueduct Racetrack in Queens have been wildly successful in recent years. And Empire plans to seek state gaming commission approval to place a digital gaming parlor in Orange County, with the former Nepera Chemical complex in the Village of Harriman under consideration as a site.

Before NFL season begins, Resorts World Catskills also intends to introduce sports betting, though state law will only permit bets to be placed at the casino in Thompson. And the first nine holes of the casino’s revamped Monster golf course will soon be complete.

Of late, another bright spot for the casino has been a rise in gross gaming revenues for slot machines, which surpassed $11 million per month, respectively, in May, June and July, according to the state Gaming Commission. That’s up from as low as about $6 million per month in the past.

The casino’s daily per machine winnings averaged a healthy $236 last month, after Resorts World Catskills shed machines, dropping to 1,600 in May from 2,157 when it opened. A new poker area recently replaced the empty space.