Banks move against Aladdin

David Strow

Tuesday, Sept. 25, 2001 | 9:24 a.m.

The Aladdin disclosed Monday that its bankers began the process of foreclosing on the $1.2 billion Las Vegas Strip resort Friday, as the property hung on the brink of bankruptcy.

A Monday filing by the Aladdin with the Securities and Exchange Commission did not use the dire language seen in a SEC filing made by the Aladdin last Thursday, which stated that the property faced the possibility of closure.

But that possibility has not disappeared, as the Aladdin apparently does not have the consent of both of its owners to file for Chapter 11 bankruptcy. A bankruptcy filing may be necessary to keep the hotel-casino open.

"(The Aladdin) does not have sufficient cash to permit it to continue conducting business or to cure its defaults," the Monday filing stated. "Management believes that the circumstances ... make it likely (the Aladdin) will seek protection under Chapter 11 of the United States Bankruptcy Code. The filing of a voluntary (bankruptcy) petition by (the Aladdin) requires the consent of the holders of at least 80 percent of the membership interests ... there can be no assurance at this time that a voluntary petition will be filed."

Fifty-seven percent of the Aladdin's stock is held by the Sommer Trust, while 40 percent is owned by London Clubs International. Three percent is held by Richard Goeglein, who left as the Aladdin's chief executive Friday.

Even if the consent of both Sommer and LCI can't be obtained, observers do not believe the Aladdin would actually be forced to close. Instead, they say, it is far more likely some of the Aladdin's creditors would try to force the property into Chapter 11, a form of bankruptcy that would allow the property to keep operating.

The 2,567-room Aladdin currently employs 2,600; 500 employees were laid off last week. It carries more than $700 million in debt.

The move by the banks, led by the Bank of Nova Scotia, follows Thursday's announcement that GE Capital Corp. and GMAC -- the lenders providing lease financing to the Aladdin -- had given the Aladdin until Friday to make a $4.3 million lease payment. If that is not done, the Aladdin said GE Capital and GMAC have the ability to repossess the Aladdin's equipment and furniture covered by the leases, including slot machines.

The banks followed Friday, filing a notice of default and election to sell under deed of trust. The move gives the Aladdin 35 days to cure its default on the bank debt -- in this case, the failure by Sommer Trust and LCI to make an $8 million "keep-well" payment to the Aladdin in late August.

If that doesn't happen, all of the Aladdin's bank debt will become immediately due, and the banks can initiate a foreclosure sale of the Aladdin 90 days from Friday. The process of a foreclosure sale would take at least another 21 days to complete, which would put a potential sale of the property into January 2002 at the earliest.

If the Aladdin can get the consent of Sommer and LCI to file for bankruptcy, the property would be out of immediate danger of closing. Though it currently is out of cash, the Aladdin's bankers have said they will consider extending additional credit to the property so it could keep operating.