Las Vegas Sun

October 15, 2018

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Dispute over loan threatens bailout of Vegas casino hotel

Vacation Village's plans to emerge from Chapter 11 bankruptcy protection and to become a Holiday Inn franchise are in question over a dispute over a bailout loan for the small Las Vegas strip hotel-casino.

The dispute is over a $3.413 million brokers' fee for a $35 million loan it received in June from San Francisco-based Bank of Canton of California.

The Bank of Canton of California's proposed 10-year loan of $35 million at an interest rate of about 8.75 percent, if closed, was to have rescued the hotel-casino from being foreclosed on and auctioned off by its largest creditor, Foothill Capital Corp., a Wells Fargo & Co. subsidiary.

Foothill, a Los Angeles loan company that said it is owed about $23 million, sued Vacation Village on Oct. 24, alleging the loan, which came due on Sept. 14 and was extended to Oct. 14, was secured by a deed of trust on the Vacation Village property and all of its cash collateral including rents from room occupancy, profits, revenues and other proceeds.

But relief is now in question following accusations by three Californian brokers that Vacation Village reneged on an agreement to employ them after they allegedly introduced the hotel-casino to the bank. The brokers are now seeking court approval to be paid a 9.75 percent commission -- $3.413 million -- for the $35 million loan.

A hearing on this issue is scheduled Aug. 24.

Bankruptcy Judge Robert Jones, at a Monday hearing, said he was willing to approve the loan but ruled: " The (brokers') agreement binds you (Vacation Village) unless you can show Nevada statutes have been violated. Assuming the brokers' claims aren't fraudulent, how can I ignore their services under contract?"

William McGimsey, Vacation Village's attorney, argued Vacation Village isn't obligated to pay the fee because the agreement between the hotel-casino and the brokers was invalidated when the brokers failed to be licensed in Nevada and allegedly lied about the source of funding.

"The brokers claimed Bank of Canton wasn't making the loan. They said the loan was made by five individuals who were going to provide monies to the bank and the bank was to get a 1 percent fee for servicing the loan," he said during the hearing. "But Bank of Canton wasn't just servicing the loan, it was the lender."

Phillip Abramowitz, another Vacation Village attorney, agreed. "Vacation Village is preparing for the Aug. 24 hearing and will clearly show the brokers committed fraud. The brokers lied during negotiations when they said they were both the lenders and brokers of the $35 million loan."

"Nevada law requires that the brokers make no material misrepresentation to clients and they did. In addition they aren't licensed loan brokers in Nevada. If they do succeed in getting a one-time exemption, then they can get to court and show they weren't fraudulent. But until then, Vacation Village will never pay the $3 million fee."

But Jeffrey Patterson, the brokers' attorney, disagreed, saying: "This is just a tactic by the debtor to get something for nothing. Vacation Village claims the brokers weren't licensed in the state of Nevada. But that's just a red herring issue. There's nothing that prohibits the payment of brokers' commissions."

The brokers said, based on current interest rates, the loan they allegedly negotiated with the bank on behalf of Vacation Village would have resulted in annual savings of at least $1 million over that of the Foothill loan, assuming Foothill is charging interest at the contract rate of 14 percent.

If the dispute over the brokers' commission isn't resolved and if the hotel-casino isn't able to secure financing, then an auction date for the hotel-casino's assets is to be scheduled no later than 90 days from confirmation of Foothill's request that the hotel be auctioned, said Gerald Gordon, a Foothill attorney.

The plan is expected to be approved by the court in 14 days unless the loan closes before that, which will nullify the plan, he said. McGimsey, at the hearing, requested a 14 day grace period for Vacation Village and its new lender to fine-tune the loan's terms.

"Foothill wants the casino to stay open. But if the loan isn't closed and the hotel-casino can't refinance in 90 days, then the property will be sold at the auction," Gordon said.

Foothill, in court papers filed on July 12, sought court approval to appoint Eric Nelson Auctioneering to conduct an auction of Vacation Village's gaming equipment and real and personal property should the hotel-casino fail to close the loan transaction.

Meanwhile, Thomas Salerno, Bank of Canton's attorney, said there's no provision for the estimated $3 million brokerage fees in the bank's financing agreement. The loan comprises a $24 million loan to pay off existing creditors, a $4 million loan to renovate the hotel to meet the requirements for a Holiday Inn franchise and a $7 million loan to build 24 new guest suites and a bowling center.

He said this dispute won't affect Bank of Canton's decision to provide financing to Vacation Village, which he described as a "prudent" move because the hotel-casino has "more than sufficient value in its collateral to secure the loan."

But he pointed out it is in both parties' interest to reach a settlement. "Either Vacation Village and the mortgage brokers reach an agreement or the loan isn't going to close. And the mortgage brokers won't get anything if the loan doesn't close and Vacation Village won't be able to retain its casino if the loan doesn't close.