Las Vegas Sun

November 13, 2018

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Lender says Arizona Charlie’s numbers don’t add up

An attorney for Arizona Charlie's hotel-casino Tuesday vowed to make California mortgage banking firm United Healthcare Financial Services LLC pay for its last-minute decision to withdraw a loan promised the company since February.

"It's safe to say that they are going to be held accountable," said John Clemency, an attorney for the Decatur Boulevard resort.

United Healthcare's decision last week not to provide Arizona Charlie's with $92 million in financing effectively pulled the rug out from under the resort, owned by Becker Gaming Inc. Becker chief Bruce Becker has until Friday to find replacement financing, or he will lose the bankrupt property to billionaire Carl Icahn.

But an attorney for United Healthcare reiterated his charge that the company was duped into agreeing to the loan by faulty Becker financial projections and by an errant employee, Stephen Goodman, who has since been fired.

"The financial data was not reviewed thoroughly by (United Healthcare's) employee and ... on the (financial) forecasting ... it would seem wishful thinking on the part of Arizona Charlie's," said Michael Brown, an attorney for United Healthcare.

Clemency stopped short of promising a lawsuit.

"We're evaluating all of our options," he said.

But Ed Weisfelner, an attorney for Icahn, said a lawsuit is likely.

"At this point I think one can anticipate a fair amount of litigation," Weisfelner said.

Arizona Charlie's declared bankruptcy in November after defaulting on loans related to a failed Missouri riverboat venture. At that time, the company declared $55 million in mortgage debt. Carl Icahn bought a majority of Arizona Charlie's mortgage notes last summer, making him the bankrupt resort's largest creditor.

Icahn has fought for control of Arizona Charlie's throughout the bankruptcy process. That all changed in June, when Becker and Icahn reached a deal calling for Arizona Charlie's mortgage notes to be repaid with a $92 million loan from United Healthcare.

Under that agreement, if Becker does not receive financing by July 31 -- this Friday -- Icahn will take possession.

In addition to paying creditors, the United Healthcare loan was to be used to add 1,800 parking spaces, 8,000 square feet of casino space, a new restaurant and a new buffet to Arizona Charlie's. The total cost of these improvements was to be $20.5 million.

Arizona Charlie's currently has 140,000 square feet of casino space and 260 rooms.

Becker's position is clear: United Healthcare promised the loan. Becker, Icahn and the bankruptcy court relied on that promise, and United Healthcare should be held accountable.

"I think they're trying to make stuff up to justify their failure to perform," Clemency said. "Their suggestion through Mike Brown ... that we somehow provided them with inaccurate information is a ruse, in my opinion."

But Brown said financial statements provided by Becker clearly show there is no way Arizona Charlie's could meet its financial projections. According to a loan document prepared by Goodman, the loan principle amount of $95 million (later reduced to $92 million) was based on two factors: an independent appraiser's assessment that the property would be worth $110 million after the improvements, and projections that net operating income would reach $20 million after the improvements.

According to Becker Gaming filings with the Securities and Exchange Commission, Arizona Charlie's operating income for the nine months ended March 31 was actually a loss of $573,000. In 1997, filings show, Arizona Charlie's posted an operating loss of $341,000, down from operating income of $2.2 million in 1996.

Between 1993 and 1997, Arizona Charlie's operating income fell from $6 million to the $341,000 loss. At the same time, revenues increased from $45.8 million to $58 million.

According to the Clark County Assessor's office, Arizona Charlie's current appraised value is $21.8 million. Throughout the bankruptcy process, Becker officials maintained the resort's market value was about $43 million.

The assumptions that $20.5 million in improvements would catapult the value of Arizona Charlie's from $43 million to $110 million and boost its operating income from a loss of $341,000 to a gain of $20 million are "highly suspect," Brown said.

"I don't see how this thing would pencil out," Brown said.

And he's not the only one. In a March filing urging the bankruptcy court to reject the United Healthcare loan, IBJ Schroder Bank & Trust Co., acting as indenture trustee for the Arizona Charlie's noteholders, questioned the same financial projections.

"The Debtor has so far valued its property at $40-$50 million," states the IBJ Schroder filing. "It now argues that, with a $20 million cash infusion, its value will increase by $55-$65 million. This is highly unlikely."

Icahn also asked the court to reject the loan.

"If the debtor could not service the secured notes ($55,000,000)," states a March Icahn filing, "how will the debtor be able to service at least $70 million in debt?"

The loan principle was later raised to $92 million.

But Clemency defended the projections, noting Arizona Charlie's improved value and cash flow projections were determined by a licensed appraiser. If United Healthcare had problems with those projections, it should never have offered the loan, Clemency argued.

On this point, Clemency has a rare ally in Weisfelner.

Whether Becker's projections are accurate or not "is beside the point now," Weisfelner said. Loan companies shouldn't write letters to bankruptcy courts offering loans that they then turn around and withdraw, he said.

"Becker may have been reasonable in relying on United Healthcare," Weisfelner said.

The focus of the disagreement seems to be Goodman, who was a senior vice president and director of secondary marketing for United Healthcare. Goodman filed papers with the bankruptcy court in March and June asserting United Healthcare was ready to offer Arizona Charlie's a loan.

In the March filing, Goodman included his resume, and resumes from Stephen Swanson, United Healthcare's managing director, and Larry Perry, the company's marketing director, apparently to verify the integrity of United Healthcare. However, Goodman was the only United Healthcare representative to sign the March filing.

Perry himself wrote Becker an earlier letter, filed by Becker with the court in February, asserting United Healthcare was prepared to make Arizona Charlie's a loan.

Brown said Goodman's job was to perform a financial analysis of Arizona Charlie's for United Healthcare. The company -- and Perry -- relied on Goodman's word that Arizona Charlie's projections were accurate, Brown said. Perry resigned from the company as a result of the incident, but continues to work with United Healthcare as a consultant, Brown said.

Goodman was essentially acting on his own, Brown said.

"I should note, there was no attorney ... going over the documents supplied by United Healthcare," Brown said.

Asked why Goodman would have gone out on a limb for Arizona Charlie's, Brown answered, "That's a very good question."

However, the company plans no action against Goodman, Brown said.

Attempts to reach Goodman were unsuccessful.

While deciding whether to pursue action against United Healthcare, Becker continues to look for last-minute financing.

"We're working on it," Clemency said. "I don't know whether anything will materialize."

And Icahn is preparing to take over, if necessary. Icahn's application for a gaming license for the Stratosphere hotel-casino, which he took over earlier this year, could be heard before the state Gaming Control Board as early as next week, a board official said. With an unrestricted license for the Stratosphere in hand, a license for Arizona Charlie's would likely be a simple formality for the billionaire.

And if Becker's Friday deadline passes with no financing, Icahn would likely have people at Arizona Charlie's next week. Under terms of his agreement with Icahn, Becker's management team will remain in place for up to 60 days to assist with the transition.

"We'd like to have somebody on-site as early as next week," Weisfelner said.