Aladdin performance improved in December

David Strow

Wednesday, Jan. 9, 2002 | 11:14 a.m.

The Aladdin hotel-casino is performing far better than expected after three months in bankruptcy, attorneys for the Strip hotel-casino said Tuesday.

As a result, they said, it is expected the Aladdin won't even need its $50 million emergency credit line after February.

In a bankruptcy court hearing, Aladdin attorney Gerald Gordon said the Aladdin posted positive cash flow of $700,000 in December, compared to a projected cash flow loss of $3.5 million.

That made December the first month the Aladdin has been cash flow positive since it filed for Chapter 11 bankruptcy protection on Sept. 28. In October the property lost $2.61 million, followed by a $5.27 million loss in November.

Though those numbers still leave much to be desired for a Strip casino, the Aladdin is still $8.8 million ahead of projections through Dec. 31.

"Terrific," bankruptcy Judge Robert Jones said. "That's great news."

Aladdin officials attributed the stronger-than-expected performance to rebounding occupancy at the property. While room rates remain depressed, rooms are being filled, they said. The Aladdin has initiated a special advertising and promotional campaign aimed at key regional markets, such as Los Angeles, Phoenix and Dallas.

"These are still tough times, but (high) occupancy is the key," Aladdin Chief Financial Officer Tom Lettero said.

Since the Aladdin is ahead of projections, the outstanding balance on its $50 million "debtor-in-possession" credit line, extended by the Aladdin's bankers when the property filed for bankruptcy, should be paid off by February, Gordon said. It isn't expected the Aladdin will need to draw on it after that date.

By contrast, when the Aladdin declared bankruptcy three months ago, only this credit line saved the property from having to close down. Now, "given the operating results to date, there is no inherent demand to sell this property immediately because it will run out of cash," Gordon said.

Instead, Gordon said, Aladdin officials have more time to stabilize the property's cash flow and to identify potential buyers. Producing steady financial results will be critical, since the Aladdin's final sale price will be determined by how much cash flow it can produce. More time, therefore, could mean a higher price for the Aladdin.

Aladdin officials are having "very detailed discussions" with the Aladdin's bank group about developing a plan to begin identifying possible buyers, Gordon said.

While the Aladdin's financial performance stabilizes, Jones assured the property's top 10 executives probably won't be going anywhere until the Aladdin's final fate is determined. During Tuesday's hearing Jones approved a retention package for the Aladdin's top 10 executives that carries a potential value of more than $3.1 million.

"In order to survive in the highly competitive gambling and hotel industry in which (the Aladdin) operates, the (Aladdin) requires competent and experienced management," Aladdin attorneys had argued in proposing the retention package. The agreement, they said, "may be one of the deciding factors governing the success of (the Aladdin's) reorganization."

As originally proposed, the Aladdin's top three executives -- President Bill Timmins, Lettero and general counsel Patricia Becker -- would have been in line to receive a "stay bonus" equivalent to one year's salary, up to one year's severance pay, and an incentive bonus of 20 percent to 150 percent of their annual salary, all payable upon the Aladdin's sale.

The stay bonus was designed as an incentive to prevent the executives from leaving prior to the Aladdin's sale. As proposed, it accumulates on a monthly basis for up to 12 months, but is not paid until the property is sold or reorganized.

Seven second-tier executives were in line to get an immediate 10 percent raise, a stay bonus of up to 40 percent of their annual salary, and a six-month severance package. In all, the packages had a potential value exceeding $6 million.

Executives aren't guaranteed of receiving these packages, since any executive quitting before the Aladdin's sale or reorganization will forfeit all the bonuses. In addition, Timmins, Lettero and Becker will only receive severance pay for the period they remain out of work if they are released by a new owner. If they take a new job at a lower salary, the Aladdin would have to pay the difference through the severance period.

The proposal ran into some fire from the Aladdin's unsecured creditors committee, who felt the incentive bonuses payable to the top three executives was "clearly excessive." After negotiations with the unsecured creditors, the Aladdin agreed to remove the incentive bonuses entirely.

But Jones expressed displeasure with the new packages. Incentive bonuses, he said, would help spur the executives to get the property sold. Severance and stay packages would not, he said.

"I don't approve of golden parachutes in bankruptcy cases," Jones said. "Where's the incentive to get this reorganized quickly? You're giving them incentives to prolong this for at least 12 months."

Aladdin attorney Robert Fell responded it gave the executives incentive to make sure the property was sold in one year or less, since they wouldn't receive any further incentives if the process dragged into 2003. And unsecured creditors attorney Frank Merola, a booster of the new plan, argued the packages were critical for the creditors.

"You're asking highly valuable casino executives, who can work at any property on the Strip, to work themselves out of a job," Merola said.

Jones agreed to approve a compromise plan that cut the top three executives' severance period from 12 months to six months, reducing their potential value by about $660,000. He approved the other elements of the packages as proposed.

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