Wednesday, Jan. 10, 2001 | 11:09 a.m.
The Regent Las Vegas needs as much as $20 million to get it through the next several months, to the point where the property can be either sold or recapitalized.
But a strange fight has developed in the Regent's search for that cash. When the Regent first filed for bankruptcy in November, it arranged to receive the $20 million from its primary creditors. Now, those creditors are trying to stave off a competing bid from Foothill Capital Corp., a subsidiary of Wells Fargo Bank.
Both Foothill and the creditors are in the strange situation of vying to give the bankrupt Regent money -- and the terms for the Regent are improving drastically, Regent attorneys say.
"We've gone from a wallflower to the prettiest girl at the dance in a very short period of time," said Frank Merola, an attorney representing the Resort at Summerlin in bankruptcy proceedings.
Bankruptcy Judge Clive Jones was set to tentatively approve a loan to the Regent Tuesday. But the company said it did not need an immediate decision because its cash reserves are stronger than expected, the result of a relatively strong December. The next hearing on the loan will be held Jan. 23, by which time the Regent expects to have selected from whom to accept the loan.
The loan is intended as temporary financing to keep the Regent open while the property goes through bankruptcy proceedings. The reason the creditors are even willing to put up the extra cash is that if the Regent were to close, its value would drop dramatically -- and the creditors would receive even less from the sale of the property.
The Regent went before a bankruptcy judge in late December to get approval for this $20 million, but the request was rejected because some conditions were considered too severe. The resort was permitted to receive $5 million from the creditors, and then sought out Foothill.
The reason the loan has become a contentious issue is because whoever extends the funds will automatically become the first to be paid off if the property is sold or recapitalized. At this point, Regent attorneys are strongly hinting that a sale will be the ultimate outcome.
The holders of $90 million in secured mortgage notes -- who were originally planning to extend the $20 million "debtor-in-possession" loan to the company -- aren't happy that Foothill could suddenly vault ahead of them in line for payment. Foothill wants to give the Regent up to $20 million, which would be in addition to the $5 million loan already received from creditors.
"The property is already 'under water,"' argued Candace Carlyon, an attorney representing holders of secured mortgage notes. "It appears even secured debts exceed the value of the asset."
Regent officials have estimated the property is worth $150 million -- well below the $270 million value attached to the property at its opening in mid-1999, and not nearly enough to cover the property's estimated debt load of more than $250 million.
To protect their position, the creditors are easing the terms of their proposed loan, including the interest rate and the date by which the Regent must be sold or recapitalized, though terms are still under negotiation. The creditors have also dropped a condition that the Regent must make an interest payment on the mortgage bonds.
But they're also trying to convince Judge Jones that the Regent shouldn't be allowed to accept a loan from Foothill with terms that are too liberal, since time is of the essence. Carlyon pointed out that the Regent is projected to lose $18 million from June through August -- losses that will ultimately be borne by creditors if the Regent isn't sold by then, she said. The Regent is projected to record negative cash flow of $3 million per month during the slow summer months, Carlyon said, with the remainder of losses coming in fees associated with the bankruptcy.
"For us to move forward with a package that does not address that (a date by which the property must be sold) does not make sense," Carlyon said. "The major concern is to make sure the debtor has a proposal to get through the bankruptcy, rather than just borrowing with no exit strategy."
Next week, the court will also consider a second loan proposal -- a proposed $3 million loan from Seven Circle Real Estate, an affiliate of the Regent's parent company, to the resort's holding company.
The loan will be used for a controversial purpose: To continue its $200 million lawsuit against J.A. Jones Construction Co., the general contractor of the resort. The Regent blamed J.A. Jones for delays in opening the property in 1999, delays the resort said contributed to the bankruptcy. J.A. Jones has countersued for $28 million in compensatory damages for unpaid work. Both suits are still pending.
"Litigation is like livestock," Merola said. "It's potentially a really valuable asset, but you have to keep feeding it."
archive
