Onex acquires controlling stake in Tropicana Las Vegas

Onex, a Canadian private equity firm, will control bankrupt Tropicana Las Vegas Resort and Casino out of Chapter 11, having amassed a majority stake through the company’s debt.

Onex bought its stake in Tropicana through the company’s senior debt over the past few months, according to the firm. The investment is the first from Onex’s third buyout fund, which is in fundraising and targeting $3.5 billion. The fund has collected about $3.1 billion in third-party capital, the firm said.

Tropicana’s senior debt is secured by its hotel and casino located along the Las Vegas strip and the 34-acre parcel of land surrounding it, the firm said.

Tropicana filed bankruptcy last year and its plan of reorganisation was approved 5 May by bankruptcy court in Wilmington, Delaware. The plan still needs approval of state gaming regulators.

The company’s plan calls for the splitting of Tropicana into two operating enterprises – one comprising all Tropicana’s assets outside of Las Vegas, and one entity consisting of the Las Vegas properties.

Tropicana also has assets in Indiana, Louisiana, Mississippi and New Jersey.

The reorganisation plan will be funded by creditors who will own the two operating entities swapping their debt for equity. In Onex’s case, the firm will control the Las Vegas properties out of bankruptcy.

Also, activist investor Carl Icahn agreed to a $150 million loan to help non-Las Vegas company exit Chapter 11.

Under the plan, the operating companies shed more than $2.4 billion in debt and eliminated more than $125 million in annual interest payments.

Onex Partners III is scheduled to close 30 September. The firm has $3.6 billion in dry powder.

Onex released its first quarter earnings last week that showed a 4 percent increase in revenues to $6.5 billion, and an increase in operating earnings of 45 percent to $523 million compared to the first quarter 2008. Net earnings for the period grew to $169 million from $45 million in the same quarter last year. Onex reported cash flow from operations of $433 million compared to $275 million in the first quarter of 2008.