Perfect timing helps Icahn group land AC Tropicana

ATLANTIC CITY, N.J. — Who says you can’t time the market?

When the Tropicana Casino and Resort was put up for sale in Jan. 2008, it was expected to fetch about $1 billion.

But after the economy tanked, a group of investors including billionaire Carl Icahn offered to swap $200 million of debt they had already bought at a steep discount in return for ownership of the casino.

And it worked.

“This bargain-basement price for what had been one of the city’s heavyweight casinos is a sign of the troubling times, both in the world at large and Atlantic City in particular,” said Joe Weinert, a casino analyst with Spectrum Gaming Group. “The Tropicana is an attractive asset that, with the proper focus, has a good upside when the economy rebounds.”

The Icahn group was the only one to submit a bid for one of Atlantic City’s largest casinos by the Friday deadline. Sean Mack, the attorney for the conservator who has been overseeing the sale process, said the investors group could be approved as the new owners by a bankruptcy judge by June 12.

It would then need to get temporary approval from New Jersey casino regulators, and apply for a full casino license, which could take a year to get. The new owners would apply for interim casino authorization, which typically lasts nine months, and can be extended for another 3 months beyond that, said Dan Heneghan, a spokesman for the state Casino Control Commission.

The investors, including Icahn, hold a $1.4 billion mortgage on the Tropicana. That enabled them to craft their offer in a way that competitors were unable to match.

They agreed to act as a so-called “stalking horse,” laying down a minimum offer in bankruptcy court that sets the floor for bids. If no one else exceeds it, the stalking horse gets the casino.

The investors offered $200 million of their debt for the casino. That required other parties to offer more than $200 million in cash or securities — something no one else was willing to do.

Gil Brooks, an attorney for the investors group, declined to comment Monday.

The sale became necessary when the New Jersey Casino Control Commission stripped the Tropicana’s former owners, an affiliate of Kentucky-based Columbia Sussex Corp., of their casino license in Dec. 2007.

A conservator, retired state Supreme Court Justice Gary Stein, was appointed to oversee the casino until a buyer could be found.

Initially, regulators and casino executives expected the Tropicana to command a price in the $1 billion range. And some offers came close, including bids of $950 million by a group of New York investors, and $850 million from Colony Capital LLC, which already owns two casinos here, Resorts Atlantic City and the Atlantic City Hilton Casino Resort.

But Stein rejected those offers, claiming they were too low or questioning the financing behind them, and started the process over.

That started the downward price spiral.

In Sept. 2008, Baltimore-based Cordish Company, which built Atlantic City’s popular retail shopping district called The Walk, and helped revitalize Baltimore’s Inner Harbor, offered $700 million in cash and notes, or $575 million in an all-cash deal for the Tropicana.

But they soon took that offer off the table as the economy continued to worsen, and talks finally broke off.

Enter the group including Icahn, who has been down this road before in Atlantic City.

He bought the former Sands Casino Hotel out of bankruptcy in 2000 for $65 million, and sold it in 2006 for $270 million to Pinnacle Entertainment, who imploded the building but has been unable to start work on a replacement.

In March, the group made its $200 million debt-swap offer for the Tropicana. It raised eyebrows at the time because it was so far below previous bids. But it now looks like a shrewd investment.