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Aladdin Sale Delayed By Dispute With Utility Plant

10 April 2002

by David Strow

LAS VEGAS --A legal spat over a heating and cooling plant could delay the sale of the bankrupt Aladdin by months, a federal judge in Las Vegas warned Tuesday.

The Aladdin is currently trying to hammer out a plan acceptable to all of its creditors that would allow the sale of the $1.2 billion property outside of a formal reorganization plan. The Aladdin already has a potential buyer identified -- real estate investment firm Colony Capital LLC, the owner of Resorts Atlantic City. Colony Capital is apparently willing to pay as much as $500 million for the property, sources have said.

The Aladdin's attorneys asked for a delay until next week to work out final details of a sale plan structure. This plan wouldn't be exclusive to Colony Capital, but would instead establish a blueprint for identifying and negotiating with potential buyers in a quick and orderly fashion.

William Noall, an attorney with the Aladdin, said negotiations with the creditors were "fruitful."

But even if those talks go well, Judge Robert Jones expressed serious concerns about moving ahead.

"I'm losing confidence in your ability to draft a successful sale procedure," Jones said in Tuesday's court hearing. "It's obvious to me this sale procedure will have to go back."

Negotiations will still continue with creditors, however, in the hope that Jones can still be convinced next week to check off on a plan that has creditors' blessings.

The hang-up involves Northwind Aladdin, which operates the on-site plant that provides the property with heated and chilled water, as well as backup electricity services. The plant cost $40 million to build, and was financed by Northwind and outside investors. The Aladdin was responsible for making payments to Northwind to cover not only services rendered by the plant, but to cover the financing and to provide Northwind's owners with a return on their investment.

The Aladdin and Northwind are entangled in a legal battle over who owns this plant. The Aladdin claims it owns the plant, and that Northwind's claims should be treated as outside financing. This would allow the Aladdin to simply sell the plant with the rest of the casino.

Northwind, however, claims the plant is its property. That means, if an outside buyer acquires the plant as part of a deal for the Aladdin, Northwind would be entitled to full recovery from the sale. Northwind is also claiming the Aladdin has failed to make payments of $3.05 million since the bankruptcy.

The two sides have sued each other in bankruptcy court in an attempt to resolve the issue. In Tuesday's hearing, attorneys said they may not be able to go to trial on the issue until late this summer.

Northwind and the Aladdin have begun negotiations in an attempt to solve the issue before then. But even if the case drags on, Noall insisted the sale could proceed.

"Any buyer coming in now would assume the worst-case scenario," that is, that Northwind would be entitled to full payment of its claim. "They'd price the deal appropriately."

Noall estimated the Aladdin had to make payments of about $6 million per year to Northwind. If the Northwind dispute was resolved in the Aladdin's favor -- and a buyer could reduce or eliminate those payments -- the property's expected cash flow would increase, and a higher price for the Aladdin could be negotiated, Noall said.

"We can draft (a sale procedure plan) around these issues," Noall said.

Jones, however, wasn't convinced a buyer would be willing to take on the "pig in a poke" of litigation.

"I don't see how they can buy into this kind of situation," Jones said. "I don't see how you're going to conduct a sale with this lawsuit (pending)."

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