Castaways losses continue, turnaround projected

By Liz Benston (contact)

Wednesday, Jan. 21, 2004 | 10:54 a.m.

The owner of the Castaways hotel-casino lost $1.6 million in December and is projected to lose another $1.3 million in January, according to a filing this week in U.S. Bankruptcy Court.

Property officials are hoping to generate a profit soon as part of a plan to emerge from bankruptcy by selling stock to the public. Castaways owner VSS Enterprises LLV has not yet submitted a formal reorganization plan with Nevada's bankruptcy court but its chief financial officer said this month that the company has cut staff and operating expenses as a way to break even and eventually make money.

The firm also said this month it will offer debt holders the opportunity to exchange about $30 million in debt into common stock at $22.50 per share. All creditors save for $22.2 million owed to a syndicate led by Las Vegas mortgage lender Vestin Mortgage will be eligible to swap their debt for stock.

VSS Enterprises expects to generate a profit "in the months to come," Chief Financial Officer Jim VanWoerkom said. The loss "looks worse than it is" because it includes depreciation costs and interest on debt, he said.

"It's not that large a cash drain on what we're doing," he said.

Until the company can complete the debt to stock refinancing it "really won't have the funds to market the property sufficiently so that we can compete with the likes of Stations, Boyd and other locals' casinos," he added.

The company expects to file a completed reorganization plan by April and issue the shares in conjunction with the filing.

The property, which filed for Chapter 11 bankruptcy protection in June, has received about $2 million in emergency loans to keep the doors open and recently received court approval to borrow a total of up to $10 million.

VSS Enterprises later decided on the debt for stock swap instead of adding to its already burdensome debt service payments, VanWoerkom said.

Before filing for bankruptcy, VSS Enterprises had anticipated upgrading the property to become a Holiday Inn franchise and benefit from the chain's nationwide hotel reservation system. The stock sale will help raise money for the upgrades, officials said.

Since the bankruptcy filing, the Castaways has posted losses of $7.3 million based on revenue of $14.2 million and expenses of $21.5 million.

Court filings show a decline in the value of VSS Enterprises assets over the past several months.

In a court filing dated Jan. 20, VSS Enterprises listed assets totaling $70.6 million including total property and equipment worth about $64.8 million. The Castaways itself is estimated to be worth $57.6 million.

A previous summary of September finances listed VSS Enterprises assets at $72.3 million including total property and equipment worth $65.5 million. The Castaways was estimated to be worth $57.9 million.