Majority owner: Sullivan casino can’t survive unless company goes private
By Daniel Axelrod
Posted Jul 25, 2019 at 7:44 PM
THOMPSON – Sullivan County’s casino cannot survive unless its parent company goes private, its biggest shareholder said in a Thursday filing with the Securities and Exchange Commission.
In a separate statement, Malaysian-Chinese casino magnate K.T. Lim, whose family trust owns 86 percent of Resorts World Catskills’ parent Empire Resorts, said he wants to buy Empire’s outstanding shares to save it.
Lim acquiring all of Empire would prep it for a bankruptcy filing to trim its massive debt load, said gaming expert Clyde Barrow, general manager and co-owner of Pyramid Associates of Westport, Mass.
Empire’s debt totaled $491.83 million in the first three months of 2019, with annual interest payments worth $59.6 million.
Empire Resorts, which also owns Monticello Raceway, averaged monthly losses of $12.58 million in the first 14 months of operation of Resorts World Catskills in the Town of Thompson, which opened in February 2018. Empire’s 2019 second-quarter earnings report is imminent.
Thursday’s SEC filing came from Yap Chong Chew, a representative of Lim’s family trust, Kien Huat Realty III Ltd., which bought and saved Empire from bankruptcy in 2009 to secure a Catskills casino operating license in 2014.
Empire “does not appear to have any reasonable prospect for becoming financially self-sustaining in the future,” Chew wrote in a letter, filed with the SEC, to a special committee of Empire’s board.
“As we no longer believe that the company can become financially self-sustaining as a standalone public company, at this time, we do not intend to provide further equity or debt financing beyond our obligations,” Chew added.
Chew was referring to Kien Huat Realty’s commitment to provide equity financing to keep Empire afloat by purchasing up to $126 million of preferred stock by as early as Nov. 15.
“We strongly believe that taking the company private will result in greater efficiencies and a bright future for Resorts World Catskills and Sullivan and Orange counties,” said Stefan Friedman, Lim’s spokesman, in a separate statement. “Mr. Lim strongly believes in the long-term potential of Resorts World Catskills.”
Lim’s goal, Friedman added, is preserving jobs at the casino, which employed 1,756 full-time and 100 part-time workers at the end of 2018.
“K.T. Lim and Kien Huat plan to potentially expand operations into Orange County, creating an additional 300 jobs,” said Friedman, referring to Empire’s effort to build an electronic gaming parlor at a possible Harriman site.
Empire leaders had no comment beyond acknowledging receiving Lim’s letter asking the board to consider voting to let him take the company private.
Such a move also could require state Gaming Commission approval, according to Lim’s SEC filing. Empire’s stock closed at $10.63 on Thursday, up $1.05 a share.
Lim’s SEC filing “is about as clear a statement of impending bankruptcy as one can make without saying the words,” said Barrow, the gaming expert. “He’s clearing the decks by offering to buy out the remaining 14 percent of equity holders, making clear they can accept an offer or, if (they don’t and) bankruptcy happens, they can lose their equity.”
Empire over-built the $928 million, 1.6-million-square-foot resort-casino too far from New York City, while taking on too much debt, Barrow said.
Kien Huat becoming Empire’s sole owner would make bankruptcy, and any accompanying debt reduction, easier because Empire’s debt holders would be negotiating with just Lim’s family trust, Barrow said.
Barrow predicted a post-bankruptcy Empire would downsize its gaming options, in the over-saturated Northeast gaming market. In its first 12 months, the casino earned 45 percent less in gross gaming revenues than its leaders projected, or $153.65 million instead of $277 million.
Empire also recorded a first-quarter 2019 loss of $37.54 million on revenue of $57.6 million and operating expenses of $76.24 million.
Empire’s leaders “have a high cash-flow business,” Thompson Supervisor Bill Rieber said. “If they manage their expenses and operate (the casino) in a different manner, I think they can turn this around. They just have to get a strangle hold of their very expensive debt.”
Barrow thinks the casino can survive, by lowering debt and downsizing.
“My God, you ought to be able to make money off a $150 million casino,” Barrow said of Resorts World’s annual gaming revenue.