Wednesday, Nov. 19, 1997 | 11:09 a.m.
Maybe wallpaper is more expensive.
How else do you explain why Stratosphere Corp. stock has bounced back to Tuesday's close of 22.5 cents a share from as low as 5 cents a little more than a week ago?
That's when the company filed a new bankruptcy reorganization plan that, if approved, would let Stratosphere cancel all existing stock and issue new equity only to the people who own $203 million of Stratosphere first-mortgage notes.
Current shareholders would get nothing. They won't even get a chance to vote on the proposed restructuring, which would distribute new stock only to note holders.
Financier Carl Icahn's High River Limited Partnership and American Real Estate Partners, plus Grace Brothers Ltd., own about 88 percent of the mortgage notes, meaning they'd own 88 percent of the restructured company. The rest would wind up in the hands of other mortgage holders.
And Icahn and the Grace Brothers, who bought the mortgage notes at a steep discount to the securities' face value, can't agree among themselves how to restructure the company.
According to the new plan filed by Stratosphere, "it does not appear that High River and Grace Brothers will reach a consensual agreement."
The one thing the bankruptcy filing says they do agree on is that they "will not consent to any distributions to holders of equity interest."
Yet for some reason, someone is buying enough Stratosphere stock to drive the equity value to its current market capitalization of $13.1 million.
The buying is in relatively small chunks. Trading volume is averaging around 200,000 shares a day. Though the amount represents only about 0.3 percent of the 58.4 million shares outstanding, the buying has pushed the stock price higher.
That's left gaming analysts stumped. One cites Alexander Pope's adage, "Hope springs eternal in the human breast." Another says Las Vegas attracts "all sorts of gamblers, including desperate ones."
Though equally puzzled, Stratosphere executives are concentrating on keeping the company afloat while the two Chapter 11 reorganization plans now on the table wind their way through the court.
Stratosphere, which employs about 1,950 workers, posted a $1.9 million loss -- including $1.7 million of reorganization costs -- in the third quarter on revenue of $33.1 million. The company owes $313.7 million.
The newest plan calls for Stratosphere to issue 2,030,000 shares of new common stock representing 100 percent of the equity interest and voting power of the reorganized company.
First-mortgage holders would get a pro rata share of the new stock and the right to elect new directors and run the company as they please or hire a management team to do it for them.
Various leases on equipment and furnishings would continue to be paid assuming current cash-flow projections are met. But the reorganized company would still have high debt levels, possibly impacting its ability to raise the $75 million required to build the 1,000 or more additional rooms analysts say it needs to compete.
Holders of about $179 million in unsecured claims would get a pro rata piece of just $6 million -- about 3 cents on the dollar. About $1 million would be paid to settle tax, wage and other allowed secured claims.
Some 9,000 people who bought about $13 million in unredeemed pre-paid vacation packages from ex-Stratosphere Chairman Bob Stupak's old Vegas World resort have been excluded from the plan because Stratosphere contends Stupak owes them the money.
Stratosphere is pursuing lawsuits against several entities it claims owes it money, including Stupak. And a trustee in the case is suing Grand Casinos Inc., which had agreed to offset cash-flow shortfalls with up to $60 million. Grand is also owed $50 million by Stratosphere.
Stratosphere Senior Vice President Tom Lettero says that, unless a new plan is offered later this year, a date will be set early in 1998 for qualified creditors to vote on the latest restructuring proposal.
"Some creditor groups will go for it, some won't," he says. "If we got the plan confirmed, perhaps in January or February, it wouldn't become effective until the new equity holders were licensed."
If the creditors forced a Chapter 7 liquidation, no junior creditors could be paid until all senior creditors were paid in full, with interest. Equity holders would rank behind all creditors.
A Chapter 7 liquidation "would result in a substantially reduced recovery" for creditors and still nothing for shareholders, Stratosphere says.
The plan estimates liquidation would raise about $132.2 million, below the projected book value of $151.3 million on a hypothetical effective date of June 28, 1998, and far less than the $313.7 million currently owed creditors.
Stratosphere says its new plan "(not only) fairly adjusts the rights of various classes of creditors and enables the creditors to realize the greatest sum possible under the circumstances, but also that the rejection of the (plan) in favor of some theoretical alternative ... will require, at the very least, an extensive and time-consuming negotiation process and will not result in a better recovery for any class."
As for Stratosphere's current stock certificates, maybe they could cover that rec room wall.