Monday, Dec. 18, 2000 | 12:31 p.m.
A Wells Fargo Bank subsidiary is seeking an order to sequester all cash collateral it claims the bankrupt Vacation Village hotel-casino in Las Vegas is using without authorization.
The small 315-room Vacation Village on the south end of the Strip filed for Chapter 11 protection from creditors in November.
Wells Fargo's Foothill Capital Corp., a Los Angeles loan company, sued Vacation Village Inc., its affiliate Shangri La Ltd. and five individuals it identified as general partners of Shangri La on Oct. 24, alleging they failed to repay a one-year loan of $19 million at an interest rate of 14 percent when it came due on Sep. 14.
The suit said the loan was secured by a deed of trust on the Vacation Village property and all of its cash collateral including rents from room occupancy, profits, revenues and other proceeds. It said $19.35 million was due as of Oct. 23.
A hearing on Foothill's request to appoint a receiver for Vacation Village was stayed after the hotel-casino filed Chapter 11. Foothill's attorneys declined to comment on whether the company will try to overturn the stay on its lawsuit against Vacation Village. But they said the Foothill's suit against Shangri La Ltd. and its five principals is still pending.
A hearing on Foothill's motion to have the cash sequestered was planned for today in bankruptcy court and a creditors meeting is scheduled Wednesday.
Scott Fleming, one of Foothill's attorneys, said the company notified Vacation Village immediately after learning of its Chapter 11 filing that Foothill objected to the hotel-casino's "unsupervised" use of the cash collateral "without an appropriate offer of adequate protection." But the hotel-casino allegedly ignored its "numerous telephone calls" and letters and failed to obtain court approval to use the cash collateral.
In court papers filed Dec. 4 in U.S. Bankruptcy Court, Foothill, which said it feared the cash collateral may be depleted rapidly as Vacation Village is still being operated, requests an accounting of all cash spent since the bankruptcy filing.
"Foothill has a first priority lien on Vacation Village's assets. We're not interested in the casino business. We're just trying to protect our loan for our investors and shareholders," said Michael Wachtell, another Foothill attorney.
Foothill alleged Vacation Village failed to provide several documents including monthly operating reports from August through November 2000, a year-end report as of Dec. 31, 1999, a three-month and one-year itemized budget of projected operational incomes and expenses from Nov. 1, 2000.
But Philip Abramowitz, Vacation Village's attorney, denied the allegations. "We've provided all these documents to Foothill. Our books and records are open to everyone. There's no chance Foothill's security will be depleted. The building is there. The casino is there and the land is there. They're just making boiler plate allegations that have no merit."
"We have appraisals valuing Vacation Village's business, the buildings and the land at $99 million. Foothill would not have made a $19 million loan to us if the entity isn't worth significantly more than the loan," he said. "Besides, this appraisal hasn't take into account our value after we become a Holiday Inn franchise."
"Foothill is trying to steal the property," he said. "We have no problems paying everyone. All 157 unsecured vendors will be paid 100 cents on the dollar.
"Vacation Village made $13 million in revenues for fiscal year ending Sep. 30, 2000. We are in the black," Abramowitz said. "It's the balloon payment of $19 million that is the problem. That is the only thing we can't pay now."
The hotel-casino has received several offers for a loan of $25 million to $30 million and expects to be renamed Holiday Inn Las Vegas in four to six months once it has upgraded the property to Holiday Inn's standards, he said. The renovations are projected to cost $1-$2 million.
Meanwhile, a receiver was appointed by on Nov. 20 for Shangri La, which didn't file for bankruptcy. Ed Nigro, who owns Citation Gaming LLC, was appointed receiver of Shangri La, which owns a commercial shopping center called Sundance Plaza at 1631, 1641 and 1651 East Sunset Road.
Nigro is authorized to examine Shangri La's business records, collect its revenue and pay its bills.
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