Construction companies may try to seize Regent

David Strow

Friday, Dec. 8, 2000 | 10:29 a.m.

While the $270 million Regent Las Vegas hotel-casino operates under the protection of the U.S. Bankruptcy Court, bondholders owed about $220 million are awaiting repayment.

But besides the secured and unsecured bondholders, there's a third group jockeying for position -- a group of 10 contractors, led by Regent general contractor J.A. Jones Construction Co. The group claims it's owed about $30 million for work performed on the Regent, and each contractor still has liens pending against the resort.

The solution they're seeking is the foreclosure of the Regent, and the sale of the resort at auction to pay their claims -- even though the Regent has the protection of a federal bankruptcy court.

"That is (the Regent Las Vegas) the only asset that the party with whom we contracted has," said Douglas Patin, attorney for J.A. Jones. "If a (General Electric) owns the property, you don't need to foreclose. But when you have no other assets, that's the only way you can eventually collect on the debt that's owed."

Mechanics liens have emerged as an issue at a number of new Las Vegas resorts, most notably at the Venetian. To protect itself against foreclosure in the case of a court loss, the Venetian "bonded around" its liens -- that is, it provided bonds to the court that could be used by the lienholders to collect any possible judgments they may win. By bonding around the liens, the Venetian cleared its title to the property.

Those bonds were not provided in the case of the Regent and its parent company, Resort at Summerlin.

Regent officials couldn't be reached for comment on whether they plan to attempt to bond around the liens while the resort is in bankruptcy, or even if such a move is allowed by law.

The Regent and J.A. Jones are also duking it out in federal court. In February, the Regent accused J.A. Jones and two subcontractors of breach of contract, blaming them for the delayed opening of the Regent -- a key reason the Regent ended up in bankruptcy, company officials have insisted. The Regent's federal lawsuit asked for $200 million in compensatory and punitive damages.

J.A. Jones countersued in federal court, asking for $28 million in compensatory damages for work it says remains unpaid. The two cases are still pending.

Cases halted

The Regent wants to proceed with the federal court cases, but the state court cases dealing with liens have been halted while the bankruptcy case proceeds.

Patin said J.A. Jones wants to lift that stay, because the state court case is critical to determining the guaranteed maximum price of the resort -- a key element in determining what compensatory damages, if any, are owed. If J.A. Jones could prove the Regent paid less than the guaranteed maximum price on construction, it and the other lienholders could be eligible to receive damages.

"In order to determine the guaranteed maximum price, we need to know what the trade contractors were owed," Patin said. "If the contractors prove up (their alleged claims), that will effect the guaranteed maximum price."

These claims must be resolved by next November, the date the federal cases are set to go to trial, Patin said.

A second issue the lienholders are battling to resolve is the issue of who has priority for repayment. The Regent's top creditors are the holders of $100 million in secured mortgage notes, followed by holders of $120 million in unsecured junk bonds.

An attorney for the unsecured creditors declined comment on J.A. Jones' plans.

Patin said the lienholders, even if they win their claims, are worried they could lose out in repayment to these bondholders. These fears were exacerbated when the Regent secured a $20 million loan from bondholders to continue operations.

A condition of this loan, received from the secured bondholders, is that the creditors receive the right to be repaid before all other creditors. For this reason, Patin said J.A. Jones is opposing the loan in bankruptcy court.

"We're very much concerned with making sure our lien rights remain a priority," Patin said. "We're concerned that future advances could prejudice our lien right. Our concern is that the funds are being used to pay down debt and fund litigation costs, and not to run operations."

The bankruptcy court has already allowed the Regent to accept $5 million of the $20 million loan, and will consider the rest at a future date.