Tropicana creditors want Vegas property split from company

By Steve Green

Published Tuesday, March 24, 2009 | 9:10 a.m.

Updated Tuesday, March 24, 2009 | 12:32 p.m.

Creditors of bankrupt Tropicana Entertainment LLC want the Tropicana hotel-casino on the Las Vegas Strip to be split off from the parent company and former MGM Mirage executive Alex Yemenidjian would be a key part of the deal.

A disclosure statement filed by the creditors with their reorganization plan Monday shows that under the plan, a new company controlled by the lenders would own the Tropicana and Yemenidjian and one of his companies have agreed to lease the gaming operations at the resort and will be involved in the proposed conversion of the property to its new ownership.

The disclosure statement said that because of its capital structure, the claims against it and its unique market, the Las Vegas Tropicana should be owned and managed separately from the rest of the company, which has 11 casinos around the country. The deal with Yemenidjian says that in addition to running the casino for the lenders, he will have "consultation rights'' regarding operations of the Las Vegas property and that he may recommend a budget and business plan to the lenders.

Yemenidjian was at various times a director, president, chief operating officer and chief financial officer in the late 1990s at MGM Mirage -- then known as MGM Grand Inc.

He is now chairman and chief executive of Armenco Holdings LLC, which along with a Tropicana creditor co-owns Trilliant Management. Trilliant Management is named in the disclosure statement as the company that will manage gaming at the Tropicana once the company emerges from bankruptcy.

Yemenidjian, a longtime lieutenant to MGM Mirage majority shareholder Kirk Kerkorian, also was chairman and chief executive of Kerkorian's MGM movie studio from 1999 to 2005.

With a gaming license being a key asset, one of the strengths Yemenidjian brings to the Tropicana deal is that he has been through the intensive Nevada gaming license procedure.

Tropicana Entertainment LLC's creditors said that in Las Vegas, the Tropicana resort on the Strip generated revenue of $118.5 million in 2008, yielding cash flow of $4.5 million and a net loss of $4.7 million after expenses were deducted for depreciation and restructuring costs. The property sits on 34 acres at Tropicana Avenue that have likely lost value because of the recession. It has 1,814 employees, the disclosure statement said.

The creditors said an analysis found the Las Vegas property is worth from $360 million to $380 million. Tropicana's creditors said the new company would assume its liabilities and issue common stock, stock rights and stock warrants; and potentially would have rights to any damages won in litigation against former Tropicana Entertainment owner William Yung III. Tropicana Entertainment spokesman Hud Englehart said the common stock would not be publicly held, and would be owned by the creditors.

The creditors claim Yung mismanaged the company, causing it to lose a key gaming license in Atlantic City, and are asserting claims against him for breach of fiduciary duty, negligence and breach of contract. Yung, the disclosure statement says, disputes these allegations and plans to fight the reorganization plan.

With this valuation, the main lenders in Las Vegas hope to recover up to 85 percent of the debt outstanding on the property, compared to a projected 70 percent if it was liquidated. When the parent company went into bankruptcy last year, the Las Vegas Tropicana lenders were owed about $440 million.

The parent company, Tropicana Entertainment, today said that its unsecured creditors had reached agreement with the company's major lenders and that along with company management they are recommending debtors vote in favor of the reorganization plans. Ballots were distributed beginning today and are due by April 17, with a bankruptcy court confirmation hearing set for April 27.

The plans of reorganization, which are the result of a process that began when Tropicana filed for protection from its creditors a year ago, generally call for secured debt to be converted to common stock and for general unsecured debt to be exchanged for warrants, interests in the litigation trust that involves Yung and cash for certain creditors. The plans also cancel all the equity interests of Yung, who will not hold any positions with the company.

In its letter to creditors, the Unsecured Creditors Committee wrote that its support of the plans is the result of "vigorous negotiations" among Tropicana, the secured lenders and the committee. The letter says the committee obtained what "it believes is improved treatment for all classes of general unsecured claims compared with treatment proposed in previously-filed versions."

"Due to the facts and circumstances of the [Tropicana] cases, in particular, the litigation risk and uncertainty associated with challenging valuation and confirmation ... the committee recommends that general unsecured creditors vote to accept the [current] plan," the letter said.

"Understanding that the backdrop for this effort has been the nation’s continuing financial crisis, we commend our lenders and the committee for engaging in a highly productive negotiation," Tropicana Chief Executive Scott Butera said in a statement. "Our plan is stronger for these efforts because we have been able to take into account the interests of all the company’s key stakeholders.

"Our employees have earned our highest respect," Butera said. "Throughout the restructuring process, they have been enthusiastic and extremely loyal. Now, with renewed regulatory and community relationships, stronger employee relations, and better overall business systems in place, we feel we have the resources necessary to operate in the highly competitive hospitality and gaming industry."

Steve Green can be reached at 990-7714 or [email protected].