Las Vegas Sun

March 28, 2024

Castaways notes lack of competitiveness on Boulder Strip in bankruptcy filing

An attorney for the Castaways Hotel, Casino and Bowling Center says it's business as usual at the Las Vegas casino following its filing for Chapter 11 bankruptcy protection Thursday.

But the property's largest creditor doubts a last-minute loan granted by the bankruptcy court Thursday will save the money-losing property from a sale or liquidation.

The bankruptcy filing comes just over a week after the Castaways defaulted on a loan balance of $20 million to Vestin Mortgage Inc., blaming the Sept. 11 terrorism attacks as well as its "lack of competitiveness in the Boulder Strip market" for not being able to pay down the loan.

Bankruptcy Judge Linda Riegle on Thursday granted an emergency order to allow the Castaways to borrow an additional $1 million from another lender to keep its doors open and its 830 or so workers employed.

Vestin was unwilling to advance any more money to the Castaways but has agreed to allow the property to free up cash on hand that it would have otherwise seized as collateral on the loan, Castaways bankruptcy attorney Gerald Gordon said. The money will be used to secure the emergency loan from USA Capital and to maintain the property. A second hearing has been scheduled for July 16 to obtain another $1 million installment from USA Capital, Gordon said.

"The purpose of yesterday's hearing was to keep employees employed," Gordon said today. "The business will be operating as usual."

Multiple calls to Castaways owners VSS Enterprises LLC were not returned Thursday.

The Culinary Union, which represents about 400 of the property's 830 employees, is monitoring the negotiations.

"We're cautiously optimistic that the Castaways owners can put together a package that can keep the place open and viable," Secretary-Treasurer D. Taylor said.

Taylor said he wasn't immediately aware of any layoffs, missed wages or unpaid benefits at the property.

State Gaming Control Board agents were at the property Thursday to make sure enough money was on hand in the casino cage to pay gamblers, Gordon said.

The Castaways' reservation line was still booking patrons as of this morning.

Candace Carlyon, an attorney for Vestin Mortgage, said the Castaways has "no exit strategy" for repaying $2 million in emergency loans aimed at stemming cash flow losses through July and August, she said.

"They seem to have lost all the money we have loaned them to date," she said. "It's not going to get any better in the next two months. The Castaways has not proposed any way of making the operation profitable or repaying additional debt."

VSS Enterprises in November announced plans to spend millions of dollars to expand the 412-room property and convert it into a Holiday Inn & Suites Hotel under a franchise agreement. The company said in the filing that it lacked the funds to complete the renovation.

The Castaways was appraised at around $60 million in July 2002 but was estimated to be worth more than $105 million with the Holiday Inn franchise, the filing said. VSS said it doesn't expect the Castaways to depreciate in value if it is operating normally.

Vestin offered to lend the Castaways an additional $5.6 million earlier this year to help the property transition to the Holiday Inn brand, she said, but the casino was unwilling or unable to comply with meeting that loan, Carlyon said.

Castaways requested and received an extension from Vestin on the loan balance, originally due in March, the filing said.

The privately owned company had about $2.3 million in cash on hand as of Thursday, including a casino bankroll of about $2.2 million, the bankruptcy filing said.

VSS owes between $50 million and $100 million to more than 200 creditors, it said.

The island-theme casino claims to have the nation's largest bowling center and is known for hosting bowling competitions and events. The property, at 2800 E. Fremont St., is located less than three miles from downtown Las Vegas. It opened in 1954 and features a roughly 80,000-square-foot casino with about 950 slot machines and 13 table games as well as bingo, keno and a sports book.

VSS Enterprises LLC acquired the property, previously known as the Showboat, from Harrah's Entertainment Inc. in March 2000. The company is named after members Michael Villamor, Dan Shaw and Gregg Schatzman.

VSS financed the initial purchase price of $23.5 million with a $15 million loan from Foothill Capital Corp., a Wells Fargo Bank subsidiary.

The company refinanced the Foothill note in March 2002 with a one-year, $20 million loan from Vestin and Owens Financial Group Inc. The loan, secured by the property, required interest-only payments at 13 percent interest per year and the entire principal and any accrued interest due on the second anniversary of the note.

The company also owes Shaw, a 60 percent owner of the Castaways, about $18 million loaned for the purchase investigation, state gaming licensing process, pre-opening expenses and remodeling costs. The loan carries an interest rate of 12 percent.

The filing lists hundreds of unsecured creditors, with the largest amount of $550,000 owed to the Hotel Employees & Restaurant Employees International Union, the Culinary Union's parent. The Castaways also owes close to $880,000 to slot maker International Game Technology.

The bankruptcy process halts collections and judgments against the Castaways and establishes Vestin as a secured creditor. The emergency loan from USA Capital has first priority of repayment ahead of Vestin's note.

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