Tropicana noteholder group seeks appointment of trustee in light of Yung's 'absolute control'

By Caroline Salls

Pittsburgh, May 6 - An informal group of Tropicana Entertainment, LLC's 9 5/8% senior subordinated noteholders have asked the U.S. Bankruptcy Court for the District of Delaware to appoint a Chapter 11 trustee to oversee the company's bankruptcy case, according to a Tuesday court filing.

According to the motion, each of the Tropicana debtors is "operating under the absolute control of William J. Yung, III."

The noteholders said Yung exercises decisive control over the debtors as Tropicana's sole director and chief executive and 100% owner of all of the equity securities of Tropicana Casino and Resorts, Inc., the debtors' ultimate parent company.

"Yung, less than two years after having acquired Trop Entertainment's principal assets, has come close to destroying Trop Entertainment's prospects for continuing as a going concern and there is no basis to believe that he is capable of reversing course," the noteholders' consortium said in the motion.

"During the pre-petition period, Yung's grossly misguided business decisions and autocratic and contentious managerial style led the debtors (and their creditors) to disaster after disaster."

The noteholders said the consequences of Yung's "gross mismanagement and misconduct" included the loss of the New Jersey gaming license for the Tropicana Resort and Casino of Atlantic City, investigations of Yung and Tropicana Entertainment by gaming regulators in other jurisdictions, ongoing risk of losing licenses in other jurisdictions, Tropicana loan defaults, the forced sale of substantial operating assets and the resulting inability of the company to service and repay its debt.

The noteholder group said the debtors have significant claims against Yung for breach of fiduciary duty and fraudulent conveyance amid allegations that "Yung shifted tens of millions of dollars of tax liabilities from himself and his non-debtor entities to the debtors' estates."

In addition, the noteholders said Yung is trying to avoid the appointment of a Chapter 11 trustee by hiring Scott Butera to serve as chief restructuring officer and announcing the replacement of Tropicana Entertainment's current chief financial officer.

"In an implicit acknowledgement that, given his abysmal track record, no court of equity could or would tolerate his unfettered control over a significant Chapter 11 proceeding involving a multi-jurisdictional, highly-regulated gaming enterprise with over $ 2.5 billion of creditor claims, Yung now seeks to avoid the appointment of a trustee by purporting to put in place new management," the noteholders said in the motion.

"Stated most simply, Yung's proposal for new independent management is for Yung to remain at the helm and continue to personally direct and control Trop Entertainment."

Although the noteholder group said it has no objection to Butera's hiring, it said Butera will not be able to do his job if he is forced to answer to Yung or a board of directors on which Yung serves.

In a statement in response, Tropicana said it would oppose the motion to appoint a trustee.

It described Butera as president and Robert Kocienski, appointed on May 1 as chief financial officer and treasurer, as "the right team...to work with all of our constituents to address our debt issues and to reorganize our business to optimize asset value."

It added: Supplementing this enhancement of our management team, we have been working diligently on other best practice corporate governance initiatives, including expediting our efforts to build an independent board of directors comprising individuals with extensive board experience, as well as regulatory and financial/audit expertise. We also are in the process of building an independent audit committee.

"By voluntarily entering the Chapter 11 process, we have signaled our intention to work with our creditors to ensure the proper resolution that secures the best possible terms for all of our stakeholders. Importantly, our plan of reorganization must be approved by the court. This is a proven process, and we have confidence in it. We will emerge as a better, stronger company. And our creditors will be treated fairly by the process."

Tropicana, a Fort Mitchell, Ky.-based gaming entertainment provider, filed for bankruptcy on May 5. The Chapter 11 case number is 08-10856.

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