Castaways to get new Vestin loan

Kevin Rademacher

Thursday, July 24, 2003 | 11:12 a.m.

The bankrupt Castaways hotel-casino on Wednesday received a financial boost from an unlikely source.

Vestin Mortgage, which arranged a $20 million loan for the Castaways owner, VSS Enterprises, will loan the Boulder Highway property an additional $2 million. The new loan was approved Wednesday by U.S. Bankruptcy Court Judge Linda Riegle.

An additional $200,000 loan from Vestin is expected to be approved at an Aug. 7 court hearing.

A portion of the new funds will be used to pay off a $1 million emergency loan Castaways received from USA Capital. That loan was approved by Riegle in a June bankruptcy hearing. USA Capital had sought to provide the additional $1 million, and Vestin had protested.

Vestin and VSS reached an agreement on the new funding deal Tuesday night, both sides said in court.

As part of the deal Vestin agreed to rescind late charges imposed on Castaways of $3.6 million and reduce the interest rate on the original loan from 13 percent to 7 percent, a savings of about $100,000 a month.

Candace Carlyon, a bankruptcy attorney representing Vestin, said the deal preserves the Las Vegas-based mortgage lender's position as the first-priority lender in the bankruptcy proceedings.

"If they don't get the money and cease operation, it's not good for the property, it's not good for the employees, and it's not good for Vestin and its investors either," Carlyon said.

"It was a balance of the interests of Vestin, the interests of the investors and the interests of the debtors," she added.

Part of the court-approved agreement is that Vestin will have management oversight in the Castaways operation "subject to the requirements of the bankruptcy code and any applicable gaming laws and regulations."

Carlyon said the likely representative from Vestin would be John Alderfer, the lender's chief financial officer and former president of the Desert Inn.

State Gaming Control Board officials could not be reached for comment on the arrangement. The Gaming Control Board and the Nevada Gaming Commission license casino owners and key managers.

Dan Shaw, a partner in VSS, said the loan will allow the company to continue to operate while the reorganization moves forward. He said Castaways will continue to make upgrades in its pursuit of a Holiday Inn franchise.

He estimated that the property needed about $6 million in room upgrades to complete the requirements of that franchise arrangement, and the new financing deal allows for the pursuit of additional funding sources.

"We will continue to operate the property and we will continue to make improvements," Shaw said. He added that while solid offers to purchase the property would be considered, there are no current plans to sell the Castaways.