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Aladdin Reports Another Loss

15 August 2001

by David Strow

LAS VEGAS, Nevada – August 15, 2001 -- The Aladdin reported yet another large quarterly loss Tuesday, though not as large as the one posted in the first quarter of this year.

Still, the $1.2 billion property is for the first time publicly discussing bankruptcy as a possibility.

The holding company of the 2,567-room Las Vegas Strip resort posted a loss of $20.4 million for the quarter ending June 30 on revenues of $76.8 million. In the March 31 quarter, the Aladdin lost $47.2 million on revenues of $73.7 million.

Cash flow rose 52 percent to $12.6 million, as table win, slot play and hotel operations all improved. But to keep up with just its debt payments, analysts say the resort needs to be producing closer to $20 million a quarter in cash flow.

"These numbers are abysmal," said Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown.

Operations are showing some improvements. Most notably, the hotel averaged 96 percent occupancy and a $120 average daily room rate during the quarter, considered very good by mid-market Strip standards.

Table win shot up 39 percent to an average of $2,964 per table per day during the quarter -- but this occurred primarily because the Aladdin's hold was an above-normal 20.9 percent. And though the Aladdin's daily win per slot was $93 during the quarter, up 7 percent, it remains below the Strip average of $125, Zarnett said.

"A large part of table improvement came from hold, which is a one-time event," Zarnett said. "For Las Vegas, (the hotel figures are) a very strong rate and occupancy, but the leverage in the casino business comes off your floor. And $93 in average daily slot gross is abysmal for a megaresort in Las Vegas."

The losses are mainly due to the Aladdin's heavy debt payments, and the only way the Aladdin has been making these payments in recent days is with the help of one of its shareholders, London Clubs International. The company is now working on a deal with its bankers that should give the Aladdin some relief until Sept. 30, 2002.

The deal is expected to be cut by Aug. 28. But if it doesn't come through, the Aladdin said it will be in default on an estimated $700 million in debt.

If default occurs, the bankers could immediately call in their loans on the Aladdin or initiate foreclosure proceedings on the Aladdin, the company said. If that happened, "(the Aladdin) likely would seek protection from its creditors under Chapter 11 of the United States Bankruptcy Code," Tuesday's report states.

What is being worked on is a deferral of the principal payments on the Aladdin's bank debt. From July 31 through June 28, 2002, scheduled debt payments now total roughly $80 million.

The Aladdin doesn't have much cash on hand -- just $9 million as of Aug. 7 -- and it's been able to make these payments only with the help of LCI. The Aladdin made an $8.8 million interest payment on July 31 -- but made this payment only because LCI pumped $7.1 million into the company three days later. An additional $8 million in investments from LCI and the Sommer Trust is required by Aug. 28 under current credit requirements.

Under the new credit agreement, the Aladdin would still have to make interest payments, but not principal payments, on its bank debt over the next year. This would reduce the Aladdin's expenses by $17.9 million. LCI and Sommer would still be required to continue putting cash into the property, but only enough to make sure the Aladdin can keep meeting debt payments.

"Once it is approved, this amendment to our loan agreement would provide us with a full year of greater stability and the opportunity to enhance our operating performance," Aladdin Chief Executive Richard Goeglein and Aladdin President Bill Timmins wrote in a Tuesday letter to Aladdin employees.

Discussions of "worst case scenarios" are required under Securities and Exchange Commission regulations, the two men said.

"It is important to remember that the company expects an agreement to be in place within the next two weeks that would provide us with the ability to continue our level of customer service and care," Goeglein and Timmins wrote.

Still, it is a temporary fix. And on Sept. 30, 2002, those deferrals will come due as part of a $31.1 million balloon payment to the banks.

"The current performance continues to be bleak," Zarnett said. "Should the deferral deals with the banks go ahead, as initially released, they would clearly have some breathing room to work on improving performance of this property and the company. Nevertheless, this is a band-aid approach for a much more serious problem."

There are two major hurdles that must be overcome in the next two weeks. First, the Aladdin must get approval for the deal from the companies providing it with equipment and furniture lease financing.

Second, an unidentified creditor is demanding that the deferral agreement be brought to a vote of all creditors -- and the Aladdin doesn't have the approval of enough creditors to constitute a majority if a vote were taken. The Aladdin's primary lender, the Bank of Nova Scotia, is saying this vote isn't necessary.

But if one of the creditors hauls the Aladdin to court, there aren't any assurances a judge would rule that the principal deferral plan was valid without a vote of all creditors, the report said.

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