Shareholders may get piece of former casino operating firm

John Wilen

Tuesday, Jan. 12, 1999 | 9:56 a.m.

It looks like former Debbie Reynolds hotel-casino shareholders may get a return on their investments after all.

In exchange for an $80,000 payment from Florida time-share developer David Siegel and mortgage creditors of the Debbie Reynolds resort, unsecured trade creditors of the resort have agreed to a plan giving Siegel 97.5 percent of the reorganized Debbie Reynolds operating company, and shareholders 2.5 percent.

If the unsecured creditors had refused to settle, there is a chance that neither the shareholders nor Siegel would have received anything.

Because it has no assets, any equity interest in Debbie Reynolds Hotel & Casino Inc. is not worth much now. But Siegel has said he may use it as a vehicle to take his private company, Central Florida Investments, public. That would let Siegel avoid much of the time and expense usually associated with an initial public offering.

If that happens, and if the company does well, Debbie Reynolds shareholders may end up with some value for their stock.

Siegel did not return calls for comment.

The Debbie Reynolds declared bankruptcy in mid-1997 after years of financial difficulties. Several potential buyers expressed interest in the resort during a 13-month bankruptcy process, but all decided not to buy after checking out the resort.

In August, the Debbie Reynolds was sold at auction to high-bidder the World Wrestling Federation. After a bit of court wrangling between the WWF, Debbie Reynolds creditors and Siegel, the WWF paid $10.65 million for clear title to the resort. The WWF said it plans to renovate the Debbie Reynolds into a wrestling-themed resort.

Siegel made several offers for the resort during the bankruptcy proceeding, and at one point lent the Debbie Reynolds $250,000 in operating cash. Even after the WWF submitted the high bid for the resort, Siegel threatened a court battle.

To get rid of Siegel, the WWF promised him 92.5 percent of a reorganized Debbie Reynolds Hotel & Casino Inc., the operating corporation stripped of assets by the WWF's purchase of the Debbie Reynolds resort, and paid him $200,000. Unsecured creditors were to get 5 percent of the shell corporation, and shareholders were to get 2.5 percent.

In bankruptcy proceedings, unsecured creditors -- unpaid providers of casino goods and services -- and equity shareholders are generally at the end of the list for compensation. Secured creditors such as mortgage lenders must be paid in full before unsecured creditors and shareholders get anything.

When the Debbie Reynolds declared bankruptcy, it owed secured creditors $11.5 million. Because the WWF's price did not exceed that level, the unsecured creditors and shareholders got nothing from the purchase.

Siegel's $250,000 loan to the Debbie Reynolds made him an unsecured creditor.

The other unsecured creditors objected to the WWF agreement to essentially give Siegel the public shell corporation, said Lenard Schwartzer, the bankruptcy attorney that represented the resort.

Though the shell -- and the 5 percent that was to go to the unsecured creditors -- is worth nothing to the creditors, it is potentially worth something to Siegel, meaning the developer appears to be getting something where other unsecured creditors are getting nothing.

The unsecured creditors voiced this objection in a formal appeal to U.S. Bankruptcy Judge Robert Clive Jones. The appeal was set to be heard on Jan. 27.

If the creditors had prevailed in their appeal, the entire deal could have collapsed, leaving Siegel and the shareholders with nothing. The public corporation would have reverted to the WWF, which would most likely have let it die, said Schwartzer.

On Dec. 30, the unsecured creditors withdrew their objection after Siegle and several secured creditors agreed to pay them $80,000. Siegel's share of that payment is $25,000. The secured creditors are "chipping in" to end the matter and receive payment of their debts from the Debbie Reynolds estate's escrow account, said Schwartzer.

In return, the 5 percent of the public shell corporation that was to have gone to the unsecured creditors will now go to Siegel, giving the developer 97.5 percent of the corporation. Shareholders will still get the remaining 2.5 percent of the shell.

But there is one last impediment to the plan. Calstar LLC, an Ohio company that also made a bid for the Debbie Reynolds in bankruptcy court, continues to object to Siegel receiving the shell corporation. Like Siegel, Calstar loaned the Debbie Reynolds $150,000 in operating cash earlier this year to keep the resort running while Calstar officials conducted due diligence on their $15.5 million offer for the resort.

Calstar's appeal will most likely be heard by Jones Jan. 27, but Schwartzer doubts it will torpedo the plan.

"It's still open to argument, but it is my guess that the judge will rule against it," said Schwartzer.