Aladdin managers reassure employees about corporate news

David Strow

Thursday, Aug. 2, 2001 | 11:25 a.m.

While confusion reigned over who is in control of the $1.2 billion Aladdin hotel-casino on the Las Vegas Strip, Aladdin's top executives tried to calm resort employees, saying little change should be expected in the resort's operations.

In a letter issued to Aladdin employees Wednesday, Aladdin Chief Executive Richard Goeglein and Aladdin President Bill Timmins said details of a deal to shift majority control of the property from the Sommer Trust to London Clubs International "are still being ironed out."

"Both London Clubs International and the Sommer Family Trust have been part of the Aladdin for several years. Neither of them is a new 'buyer,' as some recent headlines might lead you to believe," the letter stated. "That being the case, we would not expect this shift in ownership percentages to affect our daily operations, our management team, our employees or the exceptional level of service we deliver to our guests."

The Sommer Trust now owns 57 percent of the Aladdin's common stock, compared to 40 percent held by London-based LCI. LCI announced Tuesday it has signed a "heads of terms" -- similar to a memorandum of understanding -- with the Sommer Trust to make LCI the holder of 85 percent of the Aladdin's stock through the conversion of LCI's preferred stock holdings.

"The proposed ownership realignment is based upon further negotiations and a number of contingencies," said Sommer Trust trustee Jack Sommer in a statement. "No definitive agreement has been reached."

That's technically correct, LCI spokesman Luke Morton said, though he said Sommer had agreed to "major terms of the ultimate agreement."

But Goeglein said there's another element to the LCI-Sommer Trust agreement that's just as important as the shift in ownership -- the relaxation of some of the Aladdin's financial obligations.

One of the serious challenges the property has faced is debt payments of nearly $75 million per year. Cash flow has covered part of these payments, but not all of them, and the property has had to rely on cash infusions from LCI and Sommer. And it's raised serious concerns that the property could be forced into bankruptcy, as the resort's cash reserves dwindled.

But LCI has negotiated an agreement with the Aladdin's bankers that will allow the Aladdin to defer principal payments on its bank debt until August 2002, Goeglein said. That would save the Aladdin $17.4 million in payments on its $500 million-plus bank debt over the next year, though the Aladdin must continue making interest payments. An $8.8 million interest payment is expected to be made today.

The agreement "hasn't been fully signed off by all parties at this point," Goeglein said.

"(But) that's a fairly substantial assist for us," Goeglein said. "It provides us with quite a bit of a looser (financial) collar than before. It's a fair amount of money that doesn't have to come out of pocket."

Goeglein downplayed the speculation that bankruptcy could have been coming.

"Certainly everyone looks at all the alternatives when times are difficult, but that's not something we ever believed was necessary, regardless of what gaming analysts have thought," Goeglein said. "It doesn't mean that it isn't potentially (possible). Nothing's certain in this world. But I'd emphasize that every time we've had a cash shortfall, the sponsors have stepped forward."

Many observers have said the Aladdin's difficulties are due in part to a poor design, citing in particular the long walk from the parking garage to the casino, and hard-to-access entrances on the Strip. Some have said it could cost up to $100 million to fully fix the property.

But Goeglein disputes this.

"I continue to believe, contrary to the gaming gurus, that this property is the best designed, most functional property (on the Strip) in most respects," Goeglein said. "The overall functionality of the property is superb. Our guests love it, and they come back."

Goeglein said the priority for design changes is focused on making changes to the property's entrance. The Aladdin has about $4.9 million remaining on one of its credit facilities, which should provide most of the funding for the project, he said.

"We need to look at our liquidity issues and decide if we can move forward with it," Goeglein said. "I do not believe the numbers you've heard ($100 million) are remotely appropriate. For the kind of fixes we're looking at, I think the ($4.9 million credit facility) would do a very good job."