Wednesday, Nov. 28, 2001 | 10:43 a.m.
By the time 2002 comes to an end, the bankrupt Aladdin hotel-casino will likely be put on the sales block.
That, at least, is the intention of the Aladdin's bankers, who are by far the largest lenders to the $1.2 billion Las Vegas Strip resort. Their plans were disclosed in a Nov. 16 filing by the Aladdin in support of a $50 million post-bankruptcy loan extended by the bank group.
"It should be understood by the court and other parties in interest that the intent of the lenders ... is to cause an orderly sale of the Aladdin Hotel & Casino within the timeframe of six to 12 months," the Nov. 16 filing stated.
Other options for a company looking to emerge from bankruptcy include refinancing, which involves the injection of fresh capital into a company; or reorganization, under which debtors swap their debt for stock.
The banks, by far, are the Aladdin's largest creditors. Financial documents filed with the Securities and Exchange Commission by the Aladdin indicate the banks are owed $434.7 million out of a total of $560.5 million in debt. This does not include the $50 million credit line, which has first payment priority in any reorganization plan.
The Aladdin's ownership, at least on paper, remains unchanged from before the bankruptcy. The Sommer Trust still has a majority position at 57 percent, while London Clubs International holds 40 percent of the stock.
But because of their debt holdings -- and the strict terms of the $50 million loan -- the banks are considered in control of the Aladdin's bankruptcy case.
They could end up owning the Aladdin. If the Aladdin goes up for sale, the banks would have the option of a "credit bid" -- a bid for the property of up to the amount of debt they hold. This makes a sale of the Aladdin a less risky strategy than other reorganization options, since the banks could simply take possession of the Aladdin if an acceptable bid doesn't emerge.
Since the banks do not hold gaming licenses, they would then have to lease the casino to another company if they wanted to keep the Aladdin open.
Park Place Entertainment Corp. has often been mentioned as a suitor for the Aladdin. It holds a one-third stake in the Aladdin's junk bonds, which are held by Aladdin parent company Aladdin Gaming Holdings LLC -- an entity that is not in bankruptcy.
But Park Place doesn't appear enthusiastic about making a run at the Aladdin, and it has written off its investment in the property.
"We're going to continue to monitor the situation closely, and will carefully monitor any opportunities that may result," Park Place Chief Executive Tom Gallagher told investors Oct. 31. "But the bottom line is, don't hold your breath on this one."
Whether anyone's willing to pay very much for the Aladdin is a point of hot debate.
Two Las Vegas casino properties -- the Regent Las Vegas and Vacation Village -- have been sold in bankruptcy court since Sept. 11. In both cases, the sale prices didn't even come close to paying off the debtors.
"In general, interest today is less than it would have been six to nine months ago, because fundamentals in the industry aren't as robust at they were," said Andrew Zarnett, gaming analyst at Deutsche Banc Alex. Brown. "However, at the right price, there will always be buyers. Many of the main contenders (in the gaming industry) would be interested at the right price."
A casino company would likely be willing to pay six or seven times the Aladdin's annual cash flow, Zarnett said. Assuming the Aladdin could produce between $45 million and $65 million in annual cash flow, that produces a possible sale price of $270 million to $455 million.
In addition, "you'd have to make adjustments to the purchase price based on improvements each buyer believes are needed," Zarnett said. "It has fatal design flaws."
But David Atwell, a Las Vegas hotel-casino broker, believes that the Aladdin's potential goes beyond cash flow multiples.
"Historically properties sell (on the Strip) because of other outstanding qualities, such as location, frontage and name recognition," Atwell said. "It's a new property, a good location, lots of land, and has a shopping center attached ... it has a lot of pluses."
Atwell sees similarities between the Aladdin and the Dunes, sold in bankruptcy court in 1988. Steve Wynn, Kirk Kerkorian, Sheldon Adelson and Hilton Hotels Corp. all entered the bidding for the property, but in the end, it went to Japanese billionaire Masoa Nangaku for $157.7 million -- far more than was expected. Atwell represented Nangaku in the purchase.
Nangaku took a huge loss on the purchase, selling to Wynn just a few years later for $70 million. Wynn imploded the Dunes to make way for the Bellagio.
"We got lucky with the Dunes ... we got a major Japanese billionaire hot on the deal," Atwell said. "I believe that could happen again. There are a lot of people in this world with a lot of money. Properly marketed, you wouldn't have to get blind lucky to get a few international money players (interested in the Aladdin)."
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