Friday, July 31, 1998 | 10:50 a.m.
The Debbie Reynolds hotel-casino in Las Vegas will be sold at auction next week, but there's a chance Debbie Reynolds and the museum of Hollywood memorabilia she hand-picked will be back.
"Debbie is saying, 'Look, when you own the property, we'll talk,"' Todd Fisher, Reynolds' son and chief executive of the resort's operating company, said in an interview Thursday.
Ultimately, the property's fate will lie completely in the hands its new owner, Fisher said. And that means the resort could close, change theme entirely or continue on as the Debbie Reynolds Hotel and Casino.
Fisher doubts it will close.
"We must have 50 people looking," Fisher said. "Probably 10 of these people have the wherewithal to do the deal."
And most of those people want to know whether Reynolds, her name and the Hollywood Motion Picture & Television Museum are available. Everything's negotiable, Fisher said.
At minimum, the resort's mortgage lenders have bid their credit against the property, Fisher said. If no other buyer steps forward, the mortgage lenders will foreclose, trading the credit they have extended to the resort for the resort itself.
In any event, the Debbie Reynolds' new owner will inherit 1,000 deeded time-share owners, people who have paid for the right to use rooms in the resort for a certain amount of time each year. Honoring those time-share commitments is a condition of sale, even at auction, Fisher said.
"You're buying it with them in place," he said.
Closing the hotel-casino would anger those co-owners, and could cause myriad lawsuits.
"They can't be easily displaced," Fisher said. "Those owners that are still there are incredibly loyal."
The Debbie Reynolds hotel-casino opened in 1993, but has suffered financially almost from the beginning.
Debbie Reynolds bought the former Paddlewheel hotel-casino, at 305 Convention Center Drive, at auction in 1992 for $2.2 million. It's near the Strip just west of Paradise Road.
The Paddlewheel closed after its owners decided they couldn't service their debt, Fisher said.
"It was on and off," said David Atwell, a broker with Resort Properties of America, the court-appointed real estate broker for the Debbie Reynolds, of the Paddlewheel. "They never knew what they were doing."
Early on, Reynolds spent $2 million of her own money renovating the property, Fisher said. In early 1994, the hotel company, Debbie Reynolds Hotel & Casino Inc., went public and spent another $7 million to $8 million on renovations, he said.
"The theme was the old Hollywood, combined with the classy Las Vegas style," Fisher said.
In those days, amenities included a 180-room hotel, a 500-seat showroom where Reynolds performed, a 184-machine, two-table casino, and the museum, which owns the largest collection of Hollywood memorabilia in the world, Fisher said.
But Reynolds' company did not own the casino. It was operated separately by slot route operator Jackpot Enterprises. Jackpot kept the gaming revenue, paying the resort rent.
"So, we never had the revenue stream from the casino," Fisher said.
Rather than concentrating on getting the resort its own gaming license and taking over the casino, the company's managers concentrated on getting a time-share license and selling time-share units, Fisher said.
The time-shares sold, but extravagant management spending resulted in negative cash flow.
"The cost of sale was higher than the sale," Fisher said of the time-share unit deals. "Some of the management of that operation allowed costs to get out of control. They also were taking exorbitant salaries and cutting great deals for themselves."
Several managers had salaries of several hundred thousand dollars, Fisher said. And general mismanagement resulted in losses like $75,000 a month on the employee dining room.
"I think management thought it was the Mirage or something," Fisher said.
The Debbie Reynolds was also losing money on the gaming operation, he said. The rent Jackpot paid did not cover the resort's costs, he said.
"We guessed that we were losing $10,000 to $12,000 a month on the lease," he said.
As a result, the resort was running a negative monthly cash flow of $450,000, Fisher said. Its mortgage lenders were starting to get concerned. In late 1995, Fisher stepped in and sacked the property's management.
Fisher immediately pursed a gaming license and cut costs. This included ending the resort's agreement with Jackpot.
"When I took over the company, I terminated the lease," he said.
But it was too little too late. Struggling under heavy debt, the Debbie Reynolds had a hard time attracting new capital. Deals with Bennett Funding and First Boston fell though. Without sufficient operating capital, the state Gaming Control Board would not issue a license.
It was a Catch-22. The resort didn't have the cash flow to raise capital. Without capital it couldn't get a gaming license. Without a gaming license it couldn't generate cash.
"They wanted to see our capital structure," Fisher said of the Gaming Control Board. "I said, 'What capital structure? ... I never even asked them for the license because I knew we didn't meet the capital requirements."'
Running out of options, Fisher started looking for a buyer. In early, 1997, Reynolds personally guaranteed a $1.1 million loan to hold the property over until it could be sold.
In October, 1996, ILX Inc., a Phoenix time share developer, offered to buy the Debbie Reynolds for $16.8 million. But in 1997, ILX's financing fell through.
The resort was no longer able to service its debt, and its creditors started suing.
In July, 1997, the resort declared bankruptcy. Reynolds declared personal bankruptcy and resigned as chairwoman and director of the company.
On its last quarterly filing with the Securities and Exchange Commission, for the quarter which ended September 30, 1997, the Debbie Reynolds said its current portion of long-term debt was $9.8 million.
Early this year, the resort reached a $14 million acquisition agreement with Florida time-share developer David Siegel. But Toledo, Ohio-based Calstar LLC made a competing offer in bankruptcy court in April, forcing Siegel to up his offer to $15.6 million.
Siegel -- who had planned to add 1,000 new time share rooms to the resort -- dropped his bid in May after deciding that $15.6 million was $1.6 million more than the Debbie Reynolds was worth. Siegel's departure let Calstar step in as buyer with its $15.5 million backup offer.
In June, Calstar backed out of its offer, citing environmental concerns with the property. Fisher then decided on an auction.
"Now, we've been forced into a legitimate auction environment," Fisher said.
The Debbie Reynolds' problem was never location -- it's situated between the Strip and the Las Vegas Convention Center -- or conception, say Fisher and broker Atwell. The problem was mismanagement at the beginning, which led to significant financial difficulties down the road.
"As you can see, there have been management problems all along," said Atwell.
Fisher says the principal blunder was the choice to focus on time-share units rather than gaming.
"What in the world are you doing with an operation like that in Vegas with no casino?" Fisher said.
The bottom line is that without money, the resort couldn't promote itself.
"As you know, management and promotion are everything in the casino industry," Atwell said. "It was just never marketed and promoted as it should have been."
Today, independent contractor Capato Gaming operates 25 slots on the property. The resort employs 20, down from 225 when Fisher took over.
Next Wednesday, at noon, the Debbie Reynolds will be auctioned off to the highest bidder. The property will be auctioned as a whole unless a minimum bid of $11.5 million is not offered.
"If the number doesn't hit $11.5 million," said Fisher, "then some of the individual items will be sold in lots."
The idea is that items like kitchen and theatre equipment, as well as furniture and fixtures, might fetch more on their own than when grouped together with everything else.
If the minimum bid price is not offered, the resort's mortgage lender will foreclose, Fisher said.
"I don't think there's going to be a problem getting there, but who knows?" Fisher said.
The property's gaming license is still intact, grandfathered into the law requiring new Strip-area resorts to have at least 300 rooms. And the resort's time-share license still allows it to sell about 1,000 more time-share deeds, Fisher said.
Some of the previous bidders, including ILX and Siegel, have expressed interest in the auction, Fisher said.
"Obviously, it's a great theme," he said. "There's nothing wrong with the concept. It's just been undercapitalized."