Resorts International Stops Paying Interest To Bondholders
ATLANTIC CITY, N.J. (AP) _ Debt-burdened Resorts International Inc. announced Monday it had stopped stopped paying interest to bondholders, and Resorts officials indicated it would take longer than expected to turn around the troubled hotel-casino company.
″It has become clear that Resorts is a much bigger challenge than we anticipated,″ said company owner and Chairman Merv Griffin in a letter to bondholders of Resorts and its subsidiaries, Resorts International Finance Inc. and Griffin Resorts Inc.
″Obviously, I am not pleased that Resorts finds itself in the position that it must suspend interest payments,″ Griffin wrote. ″But I believe that it is necessary in order to ensure the long-term financial health of the corporation.″
David Hanlon, Resorts’ president, said the company would outline a recapitalization plan intended to deal with Resorts financial problems to bondholders at a Sept. 19 meeting. Interest payments could resume once such a plan is in place, which could take several months, he said.
Griffin’s letter said operating cash flows had been less than originally anticipated, ″in part because we underestimated the time and capital expenditures it would take to turn around the company’s operations to generate increased profits.″
He also wrote that it had taken Resorts longer than expected to sell non- operating real estate assets.
Griffin, a former talk show host and creator of such syndicated television game shows as ″Wheel of Fortune″ and ″Jeopardy 3/8″ purchased Resorts from developer Donald Trump in November.
Resorts faces payments of more than $130 million in interest and principal this year, compared with the company’s revenue of $456 million in 1988.
Earlier this month, Resorts posted a $27.9 million net loss on revenue of $110.2 million for the second quarter of 1989, compared with a $13.8 million net loss for the same period in 1988.
Edward Labaton, a New York attorney who filed a class action lawsuit in May on behalf of bondholder Peter Stuyvesant Ltd., said the default ″is proof of the misstatements that were made about the company’s financial condition.″
The lawsuit alleges that Resorts’ top officers inflated the worth of the company for a prospectus issued by Drexel Burnham Lambert Inc., which last year offered $325 million of notes on top of more than $600 million worth of Resorts’ existing debt.
Monday’s announcement ″merely confirms the concerns that were expressed in our complaint,″ Labaton said.
In his letter, Griffin told the bondholders that he continues to believe Resorts ″can become a valuable and successful company. I invested $50 million personally and have provided a letter of credit of $10 million based on that belief.″
Monday’s announcement could harm Griffin’s chances of getting a permanent casino license. The state Casino Control Commission will hold hearings next month to consider whether Resorts has enough financial stability to change Griffin’s interim authorization into a license.