Friday, Sept. 28, 2001 | 2:05 a.m.
The $1.2 billion Aladdin hotel-casino filed for Chapter 11 bankruptcy reorganization and protection from creditors Friday -- the biggest gaming industry bankruptcy in memory.
The resort, which remains operating, listed assets of $698 million and liabilities of $593 million. A hearing was set for Friday afternoon in U.S. Bankruptcy Court in Las Vegas so lawyers for the bankrupt property could propose operational plans for the immediate future.
Aladdin lawyers immediately filed motions for permission for the property to honor hotel room and other customer deposits, to honor travel agent commissions and to enter into emergency short-term loan agreements.
The bankruptcy process itself, which could culminate in the sale of the Aladdin, is likely to last many months if not years.
The filing came as the 2,567-room resort on the Las Vegas Strip faced the possible loss of its slot machines and other equipment if it didn't file by the end of the day.
As of Thursday evening, the Aladdin still had not received a signed agreement from its two owners -- the Sommer Trust and London Clubs International -- to file for bankruptcy. The support of both would likely be required before a voluntary Chapter 11 bankruptcy could be filed.
That impasse apparently was resolved Friday.
If the Aladdin itself didn't file for bankruptcy protection from creditors, an involuntary Chapter 11 petition could have been filed by any three unsecured creditors with debt totaling $10,000 or more.
The Aladdin has more than $740 million in liabilities, though just $593 million were listed in court papers Friday. In terms of debt, it is believed to be the largest in the history of the Nevada gaming industry. It has been struggling financially since it opened, unable to produce enough cash flow to cover the interest payments on its $650 million-plus debt load.
London Clubs International (LCI), owner of 40 percent of the Aladdin's stock, kept the Aladdin afloat for its first year, investing millions of dollars into the property to cover the shortfalls. But because of these investments and its share of the Aladdin's losses, the London casino operator has itself been pushed to the brink of bankruptcy. Its stock has been decimated on the London exchange, and LCI is widely thought to be a takeover target.
As a result, LCI's banks have refused to let the company invest any more cash into the Aladdin. And the Sommer Trust, the Aladdin's majority shareholder, has been unable to take up the slack, telling Aladdin officials it does not have the liquidity to make any investments.
Time had nearly run out on Friday. The resort had defaulted on both its bank debt and its lease financing, lenders had started the process of foreclosing on the property -- and the Aladdin had said it no longer has the cash to even continue business operations, which could force it to close. About 2,600 people work at the Aladdin; 500 were laid off at the property following a severe dip in Las Vegas tourism after the terrorist attacks of Sept. 11.
The Aladdin's first crucial deadline arrived Friday. On Sept. 4, the Aladdin failed to make a $4.3 million lease payment on its slot machines and equipment. The lenders, GE Capital Corp. and GMAC, had given the Aladdin until Friday to make this payment.
If the Aladdin didn't pay and didn't file for bankruptcy protection, the two lenders would have had the right to take the slots and equipment covered by the leases.
And the bankruptcy filing could also result in the Aladdin receiving the financing it needs to keep its doors open.
Even while the Aladdin's banks started the long legal process of foreclosing on the property, they have told Aladdin officials they would be willing to consider extending the property credit that would meet its "immediate working capital requirements."
However, this credit will be extended "only after the commencement of a bankruptcy case," the Aladdin said in a Securities and Exchange Commission filing last week.
The bankruptcy could open the door for a takeover by Park Place Entertainment Corp., which owns one-third of the Aladdin's junk bonds. Park Place officials have declined to comment on this possibility in recent days, saying only that they are watching the situation closely.
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