Aladdin resort filing for bankruptcy today

David Strow

Friday, Sept. 28, 2001 | 10:47 a.m.

Executives with the $1.2 billion Aladdin hotel-casino have made the decision to file for bankruptcy and the filing was scheduled for today, sources familiar with the situation said.

Time is of the essence, 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 drafted a Chapter 11 bankruptcy petition and were reviewing the bankruptcy filing plans Thursday and this morning.

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 is required before a voluntary Chapter 11 bankruptcy can be filed.

However, there were indications this morning that both partners had agreed to support the bankruptcy petition.

"Everything is moving forward smoothly," a source said this morning.

If the Aladdin itself didn't file for bankruptcy protection from creditors, 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.

London Clubs International (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 no longer has the cash to even continue business operations, which could 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.