Stratosphere stockholders may come up empty

Bill Gang

Thursday, Oct. 16, 1997 | 11:30 a.m.

Nearly $3 million already has been spent on attorneys fees in the Stratosphere hotel-casino bankruptcy case and about another million will be sought next month.

The expected result of the bankruptcy is that only the secured bond holders will get paid what they are due while unsecured creditors will be struggling for what may amount to nickles and dimes on the dollar.

Stockholders will likely lose everything they have invested.

Despite the burgeoning legal fees, there has not been a viable reorganization plan drafted for the embattled hotel-casino, complained Las Vegas attorney David Huston, who has challenged the Stratosphere's bankruptcy lawyer on behalf of former owner Bob Stupak.

"I'll be damned if I can see where the money has gone," Huston said Wednesday.

"Although all Chapter 11 bankruptcies are complicated, it's been nine months and we're still waiting for a plan that is not D.O.A."

Gerald Gordon, Stratosphere Gaming Corp.'s bankruptcy attorney, said that is "a very short time in a bankruptcy. The Riviera took two years."

Gordon said that two plans have been offered but the first proved not viable because the Stratosphere couldn't produce the expected revenue. The second relied on an infusion of cash from Grand Casinos, which had purchased the hotel from Stupak, but that fell by the wayside when billionaire investor Carl Icahn made a better offer.

"The shorter the time the better," Gordon conceded. "But there are substantial security, tax and gaming license issues."

Icahn's entry into the bankruptcy has raised eyebrows because he has been a longtime client of Gordon's law firm, although Gordon & Silver is not representing him in his bid for the Stratosphere.

What Huston said he is looking for is a plan that would provide some compensation to unsecured creditors and stockholders rather than just to secured bondholders.

One of the largest stockholders is Stupak, who transformed his Vegas-World hotel-casino into the Stratosphere in an ill-fated partnership with Grand Casinos.

Stupak has been maneuvering to take back the embattled resort, but has yet to offer a plan that could be palatable to bondholders and the bankruptcy court.

Gordon said that $310 million in debt has piled up and appraisals on the property show it is worth "substantially less."

Estimates are that its value is probably less than half of what is owed.

"Everyone wishes it was worth $300 or $400 million," Gordon lamented.

There is a $203 million mortgage and Gordon said the mortgage holders "are going to take a major bath."

He said that secured debtors, like many of the bondholders, will be paid in full -- perhaps $100 million.

The unsecured debtors will split what is left after the secured debts are paid and operating capital for payrolls and hotel-casino expenses is reserved.

What is left may not amount to more than 10 or 15 cents on the dollar, although Gordon said the final figures have not been calculated.

Based on economics and an evaluation by the court, he said, there won't be anything left over for stockholders "unless the creditors agreed" to a different distribution than that dictated by law.

"That's the way bankruptcy works. That's the way business works," he said.

Huston said he has asked the bankruptcy court to appoint an "unsecured creditors committee" to protect their interest.

The committee, he said, could investigate whether there was "preferential payments" made to some firms just before the corporation filed for bankruptcy protection.

Huston said that if that has occurred, legal action could seek to recover the improperly disbursed funds.