Aladdin debt downgraded, LCI stock slumps

Wednesday, Sept. 5, 2001 | 10:55 a.m.

A major credit agency downgraded $620 million in debt held by the Aladdin's holding company Tuesday, following the collapse of negotiations between the Las Vegas Strip hotel-casino's banks and its majority shareholder.

Meanwhile the dispute caused the stock of London Clubs International, the Aladdin's minority shareholder, to take a steep 40 percent plunge Monday, as fears rose that the Aladdin's troubles could bring LCI down as well.

Moody's Investors Service reduced the Aladdin's senior secured credit facilities rating from B3 to Caa1, and the rating on the Aladdin's junk bonds from Caa3 to Ca. Ca is the second-lowest credit rating assigned by Moody's, representing investments that are "speculative in a high degree."

Moody's lowered the Aladdin's senior implied rating to Caa2 from B3, and the long-term issuer rating to Ca from Caa3. Moody's said its outlook is negative, raising the possibility of further downgrades.

On Monday LCI announced that the Sommer Trust, the property's majority shareholder, had yanked its support for a critical renegotiation of the Aladdin's debt repayment schedule. The package would have deferred principal payments on the Aladdin's bank debt for one year, giving it more time to gain its financial footing.

"The ratings downgrade considers that if the company does not successfully renegotiate its bank credit agreement, existing cash on hand and internally generated cash flow will not be enough to fund the company's working capital and principal and interest payments over the next 12 months," the Moody's report stated.

LCI is attempting to strike a deal with the banks on its own. But as the amended bank agreement did not go into effect by an Aug. 28 deadline -- and LCI and Sommer did not make an $8 million "keep-well" payment to the Aladdin as an alternative -- the Aladdin is now in default on more than $700 million in debt.

Many observers are now speculating that the Aladdin could soon be forced to file for bankruptcy.

But even a successful resolution of the Sommer-LCI impasse would only be a short-term solution, Moody's said.

Aladdin officials could not be reached for comment this morning.

Meanwhile the Aladdin's continuing struggles are continuing to take their toll on LCI, the Aladdin's primary financial backer since the $1.2 billion resort opened in August 2000. LCI's heavy investments in the Aladdin, combined with its share of the Aladdin's losses, have placed the British casino operator in a precarious financial position.

When news of the Sommer Trust's pullout reached British investors Monday, LCI's stock plummeted 40 percent to 16.75 pence, an all-time low. It has recovered to trade in the 20 pence range.