More creditors protest Aladdin sale proposal

David Strow

Thursday, March 28, 2002 | 11:14 a.m.

The Aladdin's unsecured creditors have joined a protest against plans to quickly sell the bankrupt $1.2 billion Las Vegas Strip hotel-casino.

Their argument -- why rush to sell the property before a reorganization plan is considered, if the Aladdin's financial situation is improving?

Pointing out bullish remarks in the past by Aladdin officials, unsecured creditors' attorney Frank Merola called the Aladdin "schizophrenic about its own success."

"In an apparent effort to appease (the bank group), the debtor is seeking approval of the sale protocol motion that will place this court's (approval) on the unheard of situation where a cash flow-positive operation is sold without the procedures and protections provided in the Chapter 11 plan confirmation process," Merola wrote.

The Las Vegas Sun first reported in late February that Colony Capital of Los Angeles was negotiating to acquire the Aladdin. Sources provided varying estimates of the deal's value, ranging as high as $500 million -- a number a source familiar with the situation reconfirmed Wednesday.

This could provide a full return to the Aladdin's banks, who are owed $437.5 million. It may not provide a full return to GE Capital Corp., lessor of the Aladdin's slot machines and much of its equipment, which is owed $72 million. And even a $500 million deal would provide nothing to the Aladdin's unsecured creditors, as the Aladdin listed total liabilities of nearly $615 million as of Feb. 28.

GE Capital has already filed an objection, focusing on the low price that had been discussed in media reports.

The unsecured creditors committee, in its protest, instead argued its members would be deprived of protections provided by bankruptcy procedures if the Aladdin is quickly sold.

The Aladdin has yet to confirm Colony Capital's interest or a sale price, or respond to the creditor complaints, but it is scheduled to go to court next week to win approval for sales procedures that contemplate "the orderly liquidation of the casino-hotel as a going concern."

Merola characterized the request as an attempt "to obtain from this court an advisory opinion as to whether it will allow a yet unidentified buyer, to buy a yet undefined group of the debtor's assets, for a still-unspecified price, so long as the proceeds thereof will be distributed directly to the (pre-bankruptcy) lenders."

"This is not the type of dire situation that justifies the sale of substantially all of the debtor's assets outside a plan of reorganization," Merola wrote.

The Aladdin's latest financial report seemed to bolster Merola's position of growing strength at the Aladdin.

The property reported a net loss of $4.2 million, but posted positive cash flow of $1.6 million. By comparison, the Aladdin reported a January loss of $6.3 million and negative cash flow of $400,000.

The Aladdin's February revenues were $16.8 million, up 22 percent over January.

Since filing for bankruptcy in late September, the Aladdin has posted a cumulative net loss of $37.2 million and total cash flow of $3.7 million.