Judge tells Aladdin to work with its creditors

David Strow

Wednesday, April 3, 2002 | 11:06 a.m.

A federal bankruptcy judge said Tuesday he was willing to let attorneys for the Aladdin hotel-casino proceed with their plans to find a buyer for the bankrupt Strip property.

But Judge Robert Jones put off a final ruling on the subject for at least a week, while the Aladdin attempts to hammer out details of a sale plan with creditors who have objected to the process.

In February, the Aladdin first indicated its intent to sell off the $1.2 billion hotel-casino in a single transaction, even before a reorganization plan was filed with the court. This proposal was characterized by the Aladdin's attorneys as a "case management" plan, designed to allow them to locate and negotiate with buyers in a quick and orderly fashion.

"The largest creditors (the Aladdin's banks) told management what they'd like to see is an organized disposition of assets," Aladdin attorney William Noall said. "That means it has to be sold."

As contemplated by the Aladdin, an initial buyer would be identified and brought to the court for approval. Other parties would have a set amount of time to present counterbids to the court, and the court would approve the best offer in a hearing.

With sales procedures pre-approved by the court, Noall said the Aladdin could proceed with negotiations with potential buyers. Without such procedures, potential buyers faced confusion over who to negotiate with, and had no assurances that a sale proposal would be approved by the court, he said.

With this proposal, "we won't waste time, and more importantly, money," Noall said.

Sources have indicated the Aladdin is now in buyout talks with Colony Capital LLC of Los Angeles, owner of the Resorts Atlantic City hotel-casino, for a price of $500 million or less.

While he didn't mention Colony Capital, Noall denied a deal had been struck.

"We don't have a buyer for the property right now. No definitive agreement has been signed," Noall said. "What we need is a process to identify it (the buyer)."

The Aladdin's proposal, however, drew fire from several major creditors. They included GE Capital Corp., the company that leases the Aladdin its slot machines and equipment, and the unsecured creditors committee.

Unsecured creditors committee attorney Frank Merola said he didn't necessarily object to the concept of selling the Aladdin. But he did object to moving forward too quickly on the process.

Merola said it was possible a buyer could try to take over the Aladdin in the manner Carl Icahn took over the Stratosphere -- by offering to swap the Aladdin's existing debt for new debt or for stock in a new company. But such a possibility could be thwarted if the Aladdin locked into plans to sell the property outright, Merola argued.

There was no need to immediately choose a single course for the Aladdin, Merola said, because the property is not in the situation once faced by the Regent Las Vegas -- losing money, and facing a need to liquidate in a hurry.

"This case is not the Regent," Merola said. "There is no blood flow that needs to be staunched by making this process go faster. It may very well be that this case is resolved by a sale, but today is not the day to resolve that issue."

Aladdin attorneys, however, responded that they would not rule out alternatives to an outright sale.

"If we have someone come forward and want to restructure under a plan ... then certainly, if that was the highest and best offer, that's the way we would go," Noall said.

GE Capital also didn't object to the idea of selling the Aladdin. But attorney Candace Carlyon did object to the fact that the bank group was in talks with potential buyers, without GE Capital's participation -- and therefore, GE Capital couldn't negotiate with buyers to protect its own interests. GE Capital is the Aladdin's second-largest creditor, with a claim of about $70 million, and could take a heavy loss if the property is sold for less than $500 million.

"My client has been completely excluded from these negotiations," Carlyon said. "If that's the way it's going to be, we need to have a plan process (where plans for selling the Aladdin are contained in a reorganization plan)."

Jones urged the Aladdin's attorneys to continue negotiating with creditors in an attempt to resolve the issues, and scheduled another hearing for next week. But he indicated he wanted to give the Aladdin authorization to become the single negotiator with potential buyers.

"If (potential buyers) have to negotiate with all of you (creditors), we're making a mistake," Jones said. "We'll be cutting our own throats. There are just too many constituencies here to have them negotiate with all parties."

But he also indicated he didn't want to approve a procedure that provided little room for changes, such as a deadline for selling the property, or no alternatives other than a sale. Such restrictions could make it difficult to generate better offers for the Aladdin, he said.

Jones also said it was unlikely he would designate a "stalking horse" bidder in the case.

A stalking horse bidder can be topped by other buyers, but the stalking horse is usually entitled to compensation if this happens, including a breakup fee and expenses. The Aladdin had been seeking these concessions for a stalking horse.

Jones, however, said he was unlikely to approve such benefits. Such a plan was approved for the Regent Las Vegas, he noted, and yet little competition materialized for that property.

"I haven't seen a case yet where a stalking horse produced substantial benefits or substantial overbids," Jones said. "I'm disinclined (to approve it), unless they're willing to offer $700 million off the bat."