Vestin exposure limited in Castaways financing

Kevin Rademacher

Monday, July 28, 2003 | 11:17 a.m.

Vestin Mortgage of Las Vegas moved last week to clarify news reports about its stake in a $20 million loan at the center of the Castaways hotel-casino bankruptcy case, emphasizing that its position in the loan is just $7.5 million.

A June 19 default notice -- on file with the Clark County Recorder's office -- from Vestin to Castaways owner VSS Enterprises shows that Vestin's Vestin Fund I contributed $2 million to the loan and Vestin Fund II contributed $5.5 million.

The remaining $12.5 million was funded by Owens Financial Group, a California-based lender, the filing said. Vestin arranged the $20 million package.

Those figures were confirmed by Vestin spokesman Steve Stern.

Vestin has arranged an additional $2.2 million loan to the Castaways. That loan will be similarly apportioned, including $875,000 from the Vestin funds and about $1.3 million from Owens Financial, Vestin said.

U.S. Bankruptcy Court Judge Linda Reigle approved $2 million of the additional loan in a hearing last week. The remaining $200,000 is expected to be approved at an Aug. 7 hearing.

No other lenders were involved in either loan, Stern said. He added that Owens Financial would have no recourse against Vestin should the loan fall into default again.

Candace Carlyon, an attorney representing Vestin in the bankruptcy case, said in a recent court hearing that the additional loan was the best chance to protect its investors.

"My client was not comfortable lending any more money to this debtor," she said. "But we reached a point where we said 'we're going to give this debtor one more chance.' "

Castaways filed for bankruptcy on June 26. VSS Enterprises blamed the Sept. 11 terrorism attacks as well as its "lack of competitiveness in the Boulder Strip market" for the bankruptcy.

Vestin's move to clarify press reports about its position in the loan comes after debates in the bankruptcy proceedings focused on the value of the Castaways and the availability of collateral for the creditors.

In a July 17 hearing, Castaways attorneys said the property had been appraised at $60 million a year earlier.

VSS Enterprises has been making upgrades to the property in an effort to secure a Holiday Inn franchise. The company's attorneys said that affiliation could boost the value to more than $100 million.

Vestin, however, at one point theorized in court that the property was worth closer to $20 million based on an analysis from another lender.