Columbia Sussex found in default, but it still breathes a sigh of relief

By Liz Benston

Friday, Feb. 29, 2008 | 6:15 p.m.

A Delaware court has determined that the owner of the Tropicana casino has defaulted on a $960 million loan, a move that bondholders say could force the company into bankruptcy court by ordering it to repay the loan.

But Columbia Sussex is declaring a victory of sorts because the court ruled in its favor on two counts, which means the company doesn't have to immediately repay the loan.

Last year, New Jersey regulators stripped the company, Columbia Sussex, of its license to operate a sister Tropicana casino in Atlantic City.

Bondholders sued the company in January, accusing it of "gross mismanagement" leading to the license revocation.

The company countersued, denying the default and accusing bondholders of hurting its financial prospects and thwarting the sale of the property.

The court disagreed with the bondholders' claim that they were entitled to immediate repayment. But it agreed with bondholders on another claim of default that will give the company 60 days to repay the loan.

Columbia Sussex will only have about a month to repay the loan or risk a default that which will trigger a second default on a separate bank loan, according to a party close to the lawsuit who requested anonymity. That's because the 60-day period is triggered from the notice of default, which is about a month old, the source said.

Tropicana Entertainment would be able to avoid bankruptcy court if all debt

holders can agree to a restructuring plan, which isn't likely, the source added.

Still, Columbia Sussex spokesman Hud Englehart called the ruling "a positive outcome for the company" that "dismissed all but one of the bondholders claims."

The big question is what will happen to the Tropicana Las Vegas, which is the primary reason why Columbia Sussex acquired Tropicana owner Aztar Corp. in 2006. Columbia Sussex Chief Executive Bill Yung has ambitious plans to build at least 8,000 rooms at the site as part of a major redevelopment of the aging property.

Yung could end up losing his stake in the Tropicana Las Vegas if the property becomes part of a restructuring plan, the source said. "Losing the Atlantic City property and the default of the bonds is probably the death knell of Columbia Sussex's equity interest in this property," the source added.