Chap. 11 filing by Regent imminent

David Strow

Tuesday, Nov. 21, 2000 | 11:22 a.m.

The parent company of the Regent Las Vegas hotel-casino is drafting bankruptcy documents and a bankruptcy filing is imminent, several knowledgeable sources say.

However, company officials are believed to be working on a type of loan that would allow the Regent to continue operating while the property is in bankruptcy.

Bankruptcy documents were expected to have been filed at U.S. Bankruptcy Court this morning, but were delayed while work continued on the documents.

Nora Cooper, spokeswoman for Regent Las Vegas, was unable to confirm or deny this morning that a bankruptcy was pending.

"They're meeting (with creditors), and trying to come to a consensual agreement," Cooper said. "Those meetings have been going on for some time."

However, Cooper said there are currently no plans to shut down the property.

The pending bankruptcy comes just four days after Chief Executive Paul Hanley resigned. Hanley had been at the Regent for just six weeks, and is the third chief executive to resign this year.

Sources familiar with the property's financial situation say the property is currently experiencing negative cash flow, depleting parent company Resort at Summerlin's cash reserves. Though many gaming properties operate at a loss from time to time, it is unusual for a property to operate for any length of time with negative cash flow.

Cash flow reflects a property's income before items such as taxes, interest payments, depreciation and amortization.

Unchecked, this situation would force the property's closure. But it is believed that Resort at Summerlin officials are in talks with a creditor to provide a type of financing called "debtor-in-possession" financing. Such financing would help protect creditor interests by ensuring the property continued to operate. The creditor that extended this financing would receive top priority for repayment in bankruptcy proceedings.

Details of the Regent's financial situation remain unknown, as the property has not filed a report with the Securities and Exchange Commission since the quarter ending Sept. 30, 1999. During that quarter -- the resort's first in operations -- the company posted $11.2 million in net revenues and a $21.9 million loss.

The situation shouldn't leave players or employees high and dry, Nevada gaming regulators said this morning.

"We've sent auditors to keep an eye on their bankroll," said Nevada Gaming Control Board member Dennis Neilander. "They remain in compliance with bankroll requirements, and have sufficient funds to cover all outstanding gaming obligations."

Neilander also said the property has enough cash on hand to meet its payroll.

What will happen to the Regent after it files for bankruptcy is a point of speculation. But when asked why the Regent reached such dire financial straits just 16 months after its opening, analysts are in complete agreement.

"The property struggled because it was a poorly executed plan for the market," said Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown. "They were trying to target high-end customers, and at the same time, they were trying to target the Station Casinos-locals market.

"Trying to mix and match two philosophies in one property with a high fixed-cost base proved to be non-successful."

The property went into default on $220 million in debt in September when it halted interest payments on $120 million in junk bonds. Negotiations with the company's creditors immediately ensued.

Marc Falcone, gaming analyst with Bear Stearns, believes the property could be a takeover target of a number of local gaming operators if it indeed files for bankruptcy. At the top of the speculation list is corporate investor Carl Icahn, who took over both the Stratosphere and Arizona Charlie's in bankruptcy court.

That speculation is bolstered by Icahn's minority position in Resort at Summerlin's $100 million in bank debt, which has top priority for repayment. Falcone said he didn't know, however, how much of that debt Icahn currently holds.

"With his track record and the three properties in Las Vegas, (Icahn) would be an ideal candidate to look to ... in taking it out of bankruptcy," Falcone said. "He's had an effective strategy of taking properties out of bankruptcy and running them efficiently. He's one of the leading candidates to do this with this property. The property could fit into his portfolio of locals assets."

In the case of the Stratosphere, Icahn assumed control of the property by building a controlling position in the Stratosphere's publicly traded debt, then winning court approval to convert this debt to equity. This court deal wiped out the publicly-traded shares of Stratosphere Corp., and gave Icahn majority ownership of the property.

In the Resort at Summerlin's case, there is no publicly traded stock, just publicly traded debt. The company is owned by Seven Circle Resorts Inc., which is in turn owned by Swiss Casinos of America Inc. Swiss Casinos had attempted to keep the resort afloat by supplying capital -- nearly $31 million in cash from November 1999 to February 2000 -- but later halted those efforts.

Icahn could not be reached for comment.

Though Icahn remains the most popular target of takeover speculation, Falcone believes Station Casinos Inc. or Coast Resorts Inc. -- owner of the neighboring Suncoast hotel-casino -- may examine making a takeover bid for the Regent in bankruptcy.