Construction insurer to pay $22 million to Regent

David Strow

Thursday, Oct. 25, 2001 | 9:58 a.m.

With the Regent Las Vegas now just weeks away from being sold, creditors of the bankrupt Las Vegas hotel-casino are fighting over the proceeds.

The cause of the battle is simple -- the Regent will be sold Nov. 15 to Canadian real estate firm Larco Investments Ltd. for $80 million. But claims against the Regent's holding company, Resort at Summerlin L.P., total more than $300 million. That's sent lawyers scrambling to protect their client's financial positions.

There is some good news for creditors. In a court hearing Wednesday, it was announced that a partial settlement has been tentatively reached between the Regent and J.A. Jones Construction Co.

In this lawsuit, filed in February 2000, the Regent demanded $200 million in damages from J.A. Jones, blaming long construction delays as a key reason for the property's bankruptcy. J.A. Jones made a counterclaim, saying it hadn't been paid for nearly $30 million in work on the resort. The company that provided the Regent with insurance on the project has agreed to pay $22 million.

This settlement hasn't been formally agreed to yet, but is expected to be approved by both sides within a week.

The Regent will continue pursuing fraud claims against Jones, which aren't covered by the policy, as well as claims against the firm that brokered the insurance policy. The Regent claims this broker didn't provide it with adequate insurance protection against construction-related claims and delays. J.A. Jones is also continuing to pursue its claim against the Regent.

If the settlement is finalized, that would raise the pool of cash available for creditors to about $100 million. But that's still not enough to cover even the secured claims against the property.

The unsecured creditors -- who may get nothing -- showed their displeasure at that outcome in court Wednesday.

"The way this stands at the moment ... there is absolutely no funding for the (unsecured creditors) at all," said Ken Pasquale, an attorney representing the committee of unsecured creditors. "We are not satisfied the debtor is satisfying its fiduciary duty."

The unsecured creditors are pressing the Regent to be more aggressive in pursuing lawsuits that could produce more cash for creditors. At the top of their wish list is a proposed lawsuit against Swiss Casinos of America, the current owner of the Regent.

In a recent filing, the unsecured committee demanded that the Regent file a lawsuit against Swiss Casinos for breach of fiduciary duty and mismanagement of the Regent. A draft lawsuit was sent to Regent attorneys about a month ago, but no action has been taken yet.

The committee's demands came as an objection to a request by the Regent to use the hotel-casino's cash from operations to keep the property open and running through Nov. 15, the date the sale to Larco is supposed to close.

"This is about the use of this cash, not about these various litigations," said Frank Merola, attorney for the Regent.

Merola said the unsecured creditors "needed to accept some reality here," noting that the likelihood of their repayment is quite low.

"No doubt a lot of this litigation will be brought," Merola said. "(But) the committee wants me to sue everybody."

Judge Robert Jones agreed with Merola, overruling the committee's objections in approving the use of operating cash.

Pasquale said the committee may ask the court to yank control of the estate from the Regent's holding company to a court-appointed trustee. It won't be able to have such a request heard until after the Regent is sold, but Pasquale said that is irrelevant.

"Our concern isn't the asset being sold, it's about preserving any value for unsecured creditors from litigation proceeds," Pasquale said.

Swiss Casinos is already the target of one lawsuit, filed by the Regent's secured creditors in Delaware in late August.

In this lawsuit, the secured creditors claimed an agreement with Swiss Casinos required Swiss Casinos to take out a $7 million credit line in August 2000, and establish a $12.5 million account that could be used to pay back the creditors if the Regent went into default. Swiss Casinos did neither, the secured creditors claim, and the secured creditors are demanding $22.5 million in damages.

The secured creditors are also demanding full payment of the $90 million they claim they are owed by the Regent's holding company, less any amount received on their first claim.

In a related action filed in Nevada bankruptcy court, the secured creditors asked Judge Jones to freeze all payments from the Regent to Swiss Casinos until the Delaware case is resolved. Since the Regent has filed for bankruptcy, the creditors claim, more than $2 million received from the Regent has been transferred out of the country -- and out of the reach of the bankruptcy court -- by Swiss Casinos.

This could affect Swiss Casinos' right to receive payments from the J.A. Jones settlement, as Swiss Casinos lent funds to the Regent to pursue this case. If the $22 million settlement is approved, Swiss Casinos would be entitled to receive roughly $5 million, Regent attorneys said. The secured creditors want these payments frozen.

Swiss Casinos attorneys protested, saying that it would be difficult for the company to continue to finance the ongoing claims against J.A. Jones without an assurance that the company would be repaid. Swiss Casinos agreed in January to finance the legal costs associated with the lawsuits.

"They're trying to backdoor their way out of this agreement," said Swiss Casinos attorney Andrew Gordon. "We're trying to preserve the deal as it was originally put together."

Merola angrily responded that Swiss Casinos could not stop lending funds under its agreement, and called the company's claim an attempt to "hold the litigation hostage."

A decision won't be made until Nov. 19, when the J.A. Jones settlement is expected to be brought to Jones for approval.

Meanwhile, the Regent and its secured creditors are fighting it out with yet another Regent creditor -- PDS Gaming Corp., the Las Vegas company that supplied much of the Regent's gaming equipment and furniture.

PDS says this equipment was leased to the Regent, not sold, and that these leases must be paid off as a secured claim after the resort is sold. That would greatly reduce the amount of money available for the other secured creditors, since PDS' claim totals more than $30 million.

But the Regent and the secured creditors claimed in an Oct. 12 filing that PDS provided financing to the Regent, not leases. As a result, they want PDS' claim reduced to the "fair market value" of the equipment, minus more than $6 million paid to PDS by the Regent since the bankruptcy. Under this scenario, PDS would be entitled to no more than $4 million.

The Regent and the creditors are also asking the court to determine whether PDS should be paid before or after the secured creditors. The secured creditors are arguing their claims should have priority.

Judge Jones on Wednesday placed $35 million in proceeds from the Regent sale in an escrow account until the issue can be resolved. A trial is set to begin Jan. 30.