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Castaways on Verge of Bankruptcy27 June 2003
by Jeff Simpson
LAS VEGAS -- The Castaways may file for bankruptcy protection from its creditors today if it is not able to settle a dispute with a lender on an overdue payment on a $20 million mortgage loan, sources said Wednesday.
Las Vegas-based Vestin Mortgage started foreclosure proceedings against Castaways owner VSS Enterprises after the Fremont Street locals property missed an interest payment on its loan, sources said.
The loan is secured by the deed to the Castaways property; if Vestin persists in foreclosing on the property because of the unpaid interest, Castaways would likely have to file for bankruptcy protection to prevent Vestin from selling the property.
Property executives want Vestin to relax its loan terms, sources said.
VSS Enterprises Chairman Dan Shaw wasn't available Wednesday and CEO Michael Villamor declined to comment on Vestin's foreclosure filing.
Vestin Group Chairman Mike Shustek didn't return a Wednesday call.
The 344-room property is owned by Shaw and Villamor; state gaming regulators recently approved the duo's acquisition of former partner Gregg Schatzman's 15 percent share of the company.
Shaw, Villamor and Schatzman bought the former Showboat from Harrah's Entertainment in March 2000 for $23.5 million.
They renamed the property and introduced its Spanish ocean theme.
VSS funded its original Showboat acquisition with a $15 million, six-year loan from Foothill Capital, a subsidiary of Wells Fargo, at 12.75 percent interest.
Shaw loaned VSS an additional $11 million, which he obtained by selling an apartment complex and by borrowing $5 million, using a natural gas pipeline as collateral.
Commissioner Augie Gurrola asked Shaw in 2000 at the time of the VSS licensing hearing whether Shaw was personally willing to increase his investment to weather possible continuing losses.
Shaw told the commission, "If I have to double or triple my investment, I'll do it."
Property lawyers said last year that the property was struggling to afford new Culinary Union contracts for its 400 or so union workers, but they nevertheless reached a five-year deal.
Castaways bosses said last fall that they were close to deals that would put a Holiday Inn brand on the hotel-casino and trigger a $57 million renovation and expansion at the 48-year old property.
Villamor said recently that the hotel still plans the conversion and that necessary renovations were being done to hotel rooms to allow the brand affiliation.
Signs advertising the potential Holiday Inn affiliation were still on site as recently as last week.
The renamed Castaways Las Vegas Holiday Inn & Suites would add 356 rooms and 80 suites to the property, with the existing rooms slated for a thorough renovation.