Vacation Village creditors voting on sale of bankrupt hotel-casino

The Vacation Village hotel-casino in Las Vegas is still seeking last-minute refinancing in a bid to emerge from its Chapter 11 bankruptcy filing. But its largest creditor, a Los Angeles loan company, is moving ahead with plans to force a sale of the hotel-casino to recover a $19 million loan.

Creditors, meanwhile, have until July 16 to cast their ballots to approve or reject a disclosure statement by the Wells Fargo & Co. subsidiary, Foothill Capital Corp., to sell the property and its gaming equipment at auction.

The disclosure statement -- which describes how the planned asset sale will be executed -- was approved on June 15 by U.S. Bankruptcy Judge Robert Jones, some eight months after the 24-acre property on the south end of the Las Vegas Strip filed for Chapter 11 bankruptcy protection. A hearing on the Foothill plan is set for July 23.

Creditors will be permitted to foreclose on the property if it isn't sold on or before the auction, which will be held within 90 days of the confirmation of the restructuring plan if it's confirmed.

The small 315-room Vacation Village, which was accused by Foothill of defaulting on the $19 million loan, tried to stave off Foothill's foreclosure attempts by filing for bankruptcy protection in November and has since repeatedly said it is negotiating with several new lenders for a $25 million to $30 million loan.

Philip Abramowitz, Vacation Village's attorney, maintains that Vacation Village still expects to get refinancing in time to pay off its creditors and "pull out of the Chapter 11 plan."

"Our goal is still to pay off Foothill. I've seen the commitment letter from the bank for a loan. We have no plans to lay off any of the hotel-casino's 350 workers," he said today.

Foothill, a Los Angeles loan company, sued Vacation Village on Oct. 24, alleging the loan, which came due on Sep. 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.

The property's owners had earlier mentioned the possibility it may become a Holiday Inn franchise. But these plans now appear uncertain, after Judge Jones approved the disclosure statement proposing the hotel-casino's sale to satisfy the claims of its 157 unsecured creditors and five shareholders.

"Vacation Village had the exclusive right to file a restructuring plan within four months of its bankruptcy filing. Once the four months lapses, and no plan is filed, then any creditor can file a plan. That's why we're filing the disclosure statement now," said Gerald Gordon, Foothill's attorney.

"Vacation Village has been mentioning the possibility of refinancing for the last year. In the meantime, we're going ahead with plan, because it owes creditors $22 million-$23 million to date," he said.

In its bankruptcy filing, Vacation Village said it believes the property is worth about five times that of its liabilities. It listed assets of $107.088 million and liabilities of $21.493 million as of April 13.

The restructuring plan calls for a sale of all of Vacation Village's real property -- which the hotel-casino says is appraised at $99.6 million -- and personal property, gaming equipment and devices estimated at $7.488 million, free and clear of liens to the highest bidder. But the gaming equipment will be sold separately at the auction because Nevada gaming laws require the buyer to get specific prior licensing and the approval of gaming regulators.

Foothill said its plan assures creditors of a date by which the property will be sold, while also providing Vacation Village additional time to try to get refinancing loans to pay down its creditors.

Foothill said the plan may be confirmed, even if all classes do not consent to the proposed treatment of their claims under the plan, provided the plan doesn't "discriminate unfairly" and is "fair and equitable." This can mean secured claimants can retain their liens and receive cash payments whose present value equals the value of their security interest.

"For example, if a creditor lends a debtor $100,000 and obtains a security interest in property that is worth only $80,000, the 'fair and equitable' requirement means that the claimant is entitled to cash payments whose present value equals $80,000, and not $100,000."

But if a class of unsecured creditors votes against the plan, Foothill said the plan can't be confirmed if shareholders or partners are entitled to receive property, unless the plan provides that the unsecured creditors are first paid in full, with interest.

Foothill, which opposed a motion on June 11 by a U.S. Trustee to convert Vacation Village's Chapter 11 to a Chapter 7, said creditors will recover more under the Chapter 11 plan than under a Chapter 7 liquidation.

"We were against the conversion because the property would have closed down and revenues from gaming would have ceased," Gordon said.

Foothill also said the fair market value of Vacation Village's assets is more than the liquidation value because the property will be sold while operating at the auction as opposed to a distressed sale situation normally associated with a foreclosure sale.

The U.S. Trustee filed the motion on May 21 because Vacation Village failed to provide monthly operating reports since its bankruptcy filing. The trustee said creditors aren't able to determine "the true nature of Vacation Village's estate income and whether there is reasonable likelihood of rehabilitation."

That motion is still pending, though Vacation Village filed on June 8 its monthly reports from December 2000 through April.

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