Aladdin, partner to raise investment

Aladdin Gaming is asking its bank lenders to approve changes in financing agreements to cure several defaults that could delay completion of the $827 million resort project.

Aladdin and its partner have agreed to infuse up to $58.2 million of additional cash into the project if the proposed amendments are approved and the money is needed.

The developer of the Las Vegas Strip hotel-casino-entertainment complex disclosed in its annual report to the Securities & Exchange Commission that its net worth is expected to fall below the $100 million minimum threshold required by lenders.

Currently, the project's net worth exceeds $100 million. The bank lending agreements require that it stay above that level after the opening, which is scheduled for the second quarter of 2000.

But Aladdin Gaming President Richard Goeglein said the company and its partner, London Clubs International, have notified the project's bankers they expect net worth to dip below $100 million starting sometime in the fall as construction proceeds.

The shortfall is expected to grow each month, topping out at $33 million, he said.

But Aladdin's controlling shareholder, The Sommer Trust, and London Clubs have agreed to make up any shortfall if the banks approve the amendments, he said. Sommer Trust is an affiliate of billionaire developer Jack Sommer.

Aladdin also reported that GMAC Commercial Mortgage has notified Aladdin the company's original plan to amend the minimum net-worth requirement constituted a default of its obligations. As a result, GMAC said, it was terminating its agreement to participate in furniture, fixtures and equipment (FF&E) lease financing.

Aladdin said it has disputed the GMAC action, asserting that default can't occur on the GMAC agreement until initial FF&E financing occurs or Aladdin has missed a payment on such leases. To resolve the GMAC dispute and ensure FF&E financing stays in place, Goeglein said, Aladdin is proposing the new agreement.

Aladdin also notified its bankers it has identified an additional $18.5 million of added construction and pre-opening costs it expects to incur. Goeglein said London Clubs, which owns a 25 percent interest in the project, has agreed to put up that money as needed.

"The company has an affirmative obligation each month to review the totality of the construction project," Goeglein said. "If it determines money is required that wasn't anticipated in the original budget, regardless of when the money is believed to be needed, the company has an obligation to advise the banks."

If approved, the proposed amendments would also result in the release of another $6.7 million earmarked for other construction changes through letters of credit. That would be added to the $18.5 million and $33 million by which the company and London Clubs have agreed to increase their equity investment.

The SEC filing also noted Aladdin has submitted disagreements with the builder, Fluor Daniels Inc., over $4.7 million of change orders and delay claims for independent arbitration.

Goeglein said that if the bank lenders agree to the proposed amendments, Aladdin's independent accountants will withdraw their qualified opinion on the company's annual report.

Goeglein also confirmed that Park Place Entertainment, which is building the $760 million Paris-Las Vegas themed resort just north of the Aladdin project on the Strip, has bought Aladdin Gaming debt.

"We're delighted Park Place believes Aladdin's development warrants their investment of a significant amount of money," he said. "From my perspective, it's a win-win situation."

Aladdin's financing consists of $221.5 million of 13.5 percent senior discount notes, $410 million of bank credit facilities, $80 million of FF&E financing, and equity in the form of cash and land contributed by Sommer affiliates and London Clubs.

Park Place bought a "significant amount" of the $221.5 million of notes, though Goeglein said he didn't know the exact figure. Park Place executives declined to comment.

If Aladdin runs into financial difficulties, ownership of a majority of the notes could give Park Place an opportunity to gain control of the project, which lies just south of Paris-Las Vegas and across the Strip from Bellagio and undeveloped resort land controlled by Mirage Resorts Inc.

Buying similar publicly traded debt allowed billionaire Carl Icahn to acquire Stratosphere Corp. and Arizona Charlie's when those two companies went into bankruptcy and Icahn, their major creditor, submitted his own reorganization plans.

The Aladdin circumstances are decidedly different. Jack Sommers and London Clubs have deeper pockets than the entities that controlled Stratosphere and Arizona Charlie's, and the Aladdin project is being built in a much better location that will generate significant visitor traffic.

But Park Place "wins" if the Aladdin succeeds, as well, because it has invested in high-yield bonds during a period of low prevailing interest rates.

Phase 1 of the Aladdin project consists of an "Arabian Nights" theme incorporated into a 2,600-room hotel and 116,000-square-foot casino being built on 35 acres along the Strip.

The project includes a 1,400-seat showroom, six restaurants, a separate 15,000-square-foot London Clubs casino aimed at premium international gamblers, the 7,000-seat Aladdin Center for the Performing Arts and other amenities.

It will also feature "Desert Passage," a 496,000-square-foot retail shopping area operated by TrizecHahn Centers Inc.

Phase 2, the Aladdin Music Project, is expected to include a 1,000-room hotel, a 50,000-square-foot casino, three restaurants, a 1,500-person nightclub and other facilities.

The company expects Phase 2 to be open within 24 months after it finds a joint venture partner and completes financing for that project. Planet Hollywood pulled out of the music project after encountering financial difficulties last year.

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