Thursday, April 23, 1998 | 10:32 a.m.
Attorneys representing the bankrupt Arizona Charlie's hotel-casino spent Wednesday in court, arguing with attorneys representing Carl Icahn and other creditors over the structure of the resort's reorganization plan.
Arizona Charlie's is seeking bankruptcy court permission to ask its creditors to support a plan that would repay secured bondholders $44 million to $45 million of the company's $55 million in debt.
Several other claims against the company would be paid in full, including administrative claims totaling $1.3 million, gaming equipment claims totalling $2.4 million, taxes and smaller claims totalling $560,000 and trade vendor claims totalling $2.3 million.
The company's plan calls for settling a separate unsecured $17 million to $19 million claim filed by holders of Arizona Charlie's debt with a 10 percent cash payment on the date the company leaves bankruptcy, or a 50 percent payment spread over several years. Personal injury claims of $270,000 would be settled on the same terms.
Since Arizona Charlie's declared bankruptcy Nov. 14, Icahn's High River Limited Partnership has bought 51 percent of the company's debt, making it the company's largest creditor. High River attorneys have said Icahn will vote against Arizona Charlie's reorganization plan, and Icahn is prepared to submit his own plan. Station Casinos is expected to submit another plan.
Last week, Icahn lost a bid to get Bankruptcy Judge Linda B. Riegle to end the period under which Arizona Charlie's has the exclusive right to submit a reorganization plan. The exclusive period ends May 13.
Assuming Icahn does vote against Arizona Charlie's reorganization plan, it could still be approved by the bankruptcy court under a cram-down procedure, which is a very complex and rare reorganization structure.
Though unlikely, it is exactly the threat of cram-down that has prompted Arizona Charlie's creditors to fight strongly against the resort's plan, which they see as less advantageous than plans they are prepared to offer.
They are upset that the company's trade vendors -- companies supplying Arizona Charlie's everything from gaming machines to food -- are being treated as a separate class of creditors.
The resort's creditors contend the vendors should be grouped in with other classes of secured creditors. The current classification scheme would give the vendors, who have indicated they will approve the plan, an undue influence over whether the plan is ultimately accepted, the creditors contend.
They are also upset by Arizona Charlie's recent decision to modify its plan, increasing the resort's vendor payments from 80 percent of their claims to 100 percent.
"Getting these people on board was necessary," said Icahn attorney Edward Weisfelner during Wednesday's hearing.
Arizona Charlie's officials contend the classification is appropriate -- all are trade vendors who continue serving the resort -- and the increased payout was necessary to prevent vendors from refusing to do business with the resort.
Bruce Becker, president and chief executive of Arizona Charlie's, said the loss of any of the trade vendors would be "devastating" to the resort.
Attorneys for Arizona Charlie's creditors spent much time trying to show that the increased payment was a payoff for a positive vote rather and an attempt to keep essential vendors. They tried to demonstrate resort officials had put little effort into determining whether its vendors could be replaced.
While Arizona Charlie's officials said they were worried about losing vendors, they offered little in the way of evidence that they would have lost the vendors if the payment had not been increased.
Still, Judge Riegle wondered aloud why the vendors shouldn't be a separate class, given Icahn's influence over so many of the other creditor votes. There are a total of 14 creditor classes under Arizona Charlie's plan, though not all will vote.
"Your client would control three to four classes of votes," Reigle said.
But whether Riegle buys Icahn's argument and orders Arizona Charlie's to revise its reorganization plan or lets the company send the plan to its creditors remains to be seen: Reigle said she will not issue a ruling until next week.
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