Aladdin bankruptcy set

David Strow

Friday, Sept. 28, 2001 | 9:30 a.m.

Executives with the $1.2 billion Aladdin hotel-casino have made the decision to file for bankruptcy and this could occur as early as today, sources familiar with the situation said.

Such a filing is believed to be imminent, as the 2,567-room resort on the Las Vegas Strip faces the possible loss of its slot machines and other equipment if it doesn't act by the end of today. To head such a possibility off, executives have already drafted a Chapter 11 bankruptcy petition.

But as of Thursday evening, the Aladdin still had not received a signed agreement from its two owners -- the Sommer Trust and London Clubs International -- to file for bankruptcy. The support of both would normally be required before a voluntary Chapter 11 bankruptcy can be filed.

However, the source said, "there are probably safeguards in place that will force this (an involuntary Chapter 11 filing), even if there isn't a voluntary signature."

An involuntary Chapter 11 petition could be filed by any three unsecured creditors with debt totaling $10,000 or more.

The Aladdin has more than $740 million in total liabilities. In terms of debt, it is believed an Aladdin bankruptcy would be the largest in the history of the Nevada gaming industry. It has been struggling financially since it opened, unable to produce enough cash flow to cover the interest payments on its $650 million-plus debt load.

LCI, owner of 40 percent of the Aladdin's stock, kept the Aladdin afloat for its first year, investing millions of dollars into the property to cover the shortfalls. But because of these investments and its share of the Aladdin's losses, the London casino operator has itself been pushed to the brink of bankruptcy. Its stock has been decimated on the London exchange, and LCI is widely thought to be a takeover target.

As a result, LCI's banks have refused to let the company invest any more cash into the Aladdin. And the Sommer Trust, the Aladdin's majority shareholder, has been unable to take up the slack, telling Aladdin officials it does not have the liquidity to make any investments.

Now time has nearly run out. The resort has defaulted on both its bank debt and its lease financing, lenders have started the process of foreclosing on the property -- and the Aladdin has said it is running out of cash to continue business operations. Running out of cash would likely force it to close. About 2,600 people work at the Aladdin; 500 were laid off at the property following a severe dip in Las Vegas tourism after the terrorist attacks of Sept. 11.

The Aladdin's first crucial deadline arrives today. On Sept. 4, the Aladdin failed to make a $4.3 million lease payment on its slot machines and equipment. The lenders, GE Capital Corp. and GMAC, have given the Aladdin until today to make this payment.

If the Aladdin doesn't make this payment, the two lenders would have the right to take the slots and equipment covered by the leases.

A Chapter 11 filing would block the lenders from taking this action. And a bankruptcy filing could also result in the Aladdin receiving the financing it needs to keep its doors open.

Even while the Aladdin's banks start the long legal process of foreclosing on the property, they have told Aladdin officials they would be willing to consider extending the property credit that would meet its "immediate working capital requirements."

However, this credit will be extended "only after the commencement of a bankruptcy case," the Aladdin said in a Securities and Exchange Commission filing last week.

If the Aladdin goes into bankruptcy, it could open the door for a takeover by Park Place Entertainment Corp., which owns one-third of the Aladdin's junk bonds. Park Place officials have declined to comment on this possibility in recent days, saying only that they are watching the situation closely.

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