Creditors hope for higher price for Regent

David Strow

Monday, June 4, 2001 | 11:04 a.m.

The creditors of the Regent Las Vegas stand to take a considerable financial blow if Peccole Nevada Corp.'s $150 million bid for the bankrupt Las Vegas hotel-casino isn't improved.

But they note that Peccole's offer is only the initial bid, and they're hopeful competitors could drive the price up.

Peccole's bid for the property consists of $85 million in cash and $25 million in bonds, for a total of $110 million. The additional $40 million in value comes from the assumption of existing leases.

"The characterization of the bid being worth $130 million to $150 million is fairly creative," said Candace Carlyon, the attorney representing a committee of secured mortgage noteholders.

Carlyon said the secured noteholders are owed $115 million -- $95 million for their mortgage notes, and an additional $20 million for a "debtor-in-possession" loan the group extended to the Regent earlier this year that allowed the property to continue operating in bankruptcy.

That means, if the Peccole bid stands, the secured creditors will be short by $5 million, Carlyon said.

"The (Regent) has come up with an initial solution, but they're encouraging other bids from other parties," Carlyon said. "We're hopeful at the hearing on the sale (in July) that there will be topping bids, so more value will be derived.

"We're very happy the property is moving toward sale. We're pleased we have an offer in excess of $100 million, and we're hoepful there will be additional funds to pay not only us, but the unsecured creditors."

The unsecured creditors appear to be in a far less desirable position. This group is owed about $122 million, the vast majority of that coming from bonds that are subordinate to the mortgage notes.

As it stands now, these creditors would receive nothing from the Peccole offer.

In even worse position are the property's equity holders, who have lent about $70 million to the property. Their debt is behind the unsecured creditors' in the repayment order.

"We think the bid is a bit disappointing, because we thought it would be a bit higher, and because it doesn't give much recovery (for creditors)," said Pauline Lee, attorney for the unsecured creditors committee. "On the other hand, we believe we might get a better bid through the auction process."

At this point, Lee said the committee's main concern is that the bidding process remains open and fair. The unsecured committee has until June 12 to file any objections to the bidding process.

"We want to make sure everyone's on the same playing field, receiving the same amount of information, so there's not one party with a greater advantage than another party," Lee said. "If the process is fair, hopefully that will attract bidders too."

Lanis O'Steen, chief restructuring officer for the Regent, said it "would have been difficult to manage (the bidding process) for maximizing recoveries much better."

"We're very pleased with the way our investment banker has managed this process," O'Steen said. "We think it's been very fair, and continues to encourage higher bids and valuation on that property."

The situation isn't at all clear for subcontractors pursuing $30 million in mechanics liens against the Regent. A state judge is currently hearing a case that will determine the priority of the lienholders' claims, if they are successful in pursuing their liens in court.

If the lien claims are placed behind the secured creditors, "then selling for $150 million does my clients absolutely no good," said Lenard Schwartzer, attorney for the lienholders committee.

"The answer for everyone will be, 'If I get paid, it's a good sale, if I don't get paid, it's a bad sale,' " Schwartzer said. "I don't know our position until the question (of the liens' priority) is answered."

But could the Regent fetch more than $150 million? There's some that doubt it, particularly since the property has been operating with negative cash flow over the first half of the year. And cash flow, a commonly used measure of a gaming property's profitability, is what acquiring companies use to place a value on a casino.

David Atwell, a Las Vegas hotel-casino broker, said he's examined the Regent on behalf of a potential bidder. But he said $150 million was at the top of the range that bidder was willing to offer -- and he doubts other possible bidders will be willing to go higher, either.

"I think it's a fair offer, based on the circumstances," Atwell said. "I think this will be the deal."

But both Carlyon and Lee think the last chapter hasn't been written yet.

"I've heard there's been some very strong interest from some key players," Carlyon said. "Based on what I know, (a higher bid) wouldn't surprise me."

O'Steen said there are still "a number of active participants" who are considering overbids.

"Many of them, you'd recognize their names," O'Steen said. "There are a lot of parties ... that are interested and doing their due diligence."

As the "stalking horse," Peccole would have the right to match any counterbid made on the Regent. It has been often speculated that financier Carl Icahn -- who holds some of the Regent's mortgage notes -- and Station Casinos Inc. are interested in acquiring the Regent.

But even if a higher bid doesn't materialize, creditors say they still have one avenue left to recover some of their losses -- a lawsuit pending against J.A. Jones Construction Co., the general contractor on the Regent project.

The Regent sued J.A. Jones and two subcontractors in February 2000, blaming J.A. Jones for repeated construction delays. Regent officials have repeatedly blamed the long delay in opening the property in 1999 as a key reason the resort fell into bankruptcy. The Regent is demanding $200 million in damages; J.A. Jones has countersued, asking for $28 million for unpaid work.

Even if there isn't enough to go around from the Peccole bid, the creditors could eventually receive funds if the Regent is successful in its litigation.

"We feel there's a great opportunity for recovery based on a settlement or continuation and finalization (of litigation)," O'Steen said.

And at this point, that case appears to be the last hope for many creditors.

"I think (a legal victory in the lawsuit) is everyone's expectation, other than J.A. Jones," Carlyon said.

J.A. Jones' attorneys could not be reached for comment.