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Bankrupt Castaways Approved to Borrow $10 Million

by Liz Benston

LAS VEGAS -- A bankruptcy court judge last week gave approval for the owner of the Castaways hotel-casino to borrow another $10 million to keep the money-losing property open and to fund an expansion and remodeling project.

VSS Enterprises LLC, which owns the East Fremont Street property, filed for Chapter 11 bankruptcy protection in June shortly after defaulting on a $20 million loan arranged by Vestin Mortgage.

The Las Vegas mortgage financing company has already loaned VSS Enterprises $2.2 million in emergency funds.

The additional $10 million wouldn't come from Vestin, which didn't object to the additional financing, Castaways bankruptcy attorney Thomas Fell said. He couldn't name potential lenders saying they haven't yet been identified.

VSS Enterprises intends to use the $10 million authorization to upgrade its casino slot machine system as well as remodel and expand the property, according to bankruptcy court documents filed this month. The plan also calls for the hotel-casino becoming part of a national telephone reservation system that will allow the Castaways "to remain competitive in the local casino and hotel market, " the filing said.

The Castaways had pinned its hopes of a return to profitability on converting to a Holiday Inn franchise -- an agreement that involved remodeling existing rooms as well as building new rooms.

A contract with Holiday Inn to complete the first phase of the intended project, which ended in September, was extended by a verbal agreement through the end of the year, Castaways partner Dan Shaw said in a July court hearing. The status of the Holiday Inn contract wasn't mentioned in recent court filings.

Holiday Inn could not immediately be reached for comment. In addition to property upgrades, the $10 million also would be used to begin monthly interest payments to Vestin in connection with the initial $2.2 million emergency loan, VSS Enterprises said in court filings. The Castaways has taken "substantial" steps to decrease operating costs since filing for bankruptcy, according to the filings. "Nevertheless, the working capital infusion is imperative for the Debtor's continued operations and in order to maximize the potential for successful reorganization," VSS Enterprises said in filings. Soon after the Castaways filed for bankruptcy, attorneys for Vestin argued in court that the property had "squandered" millions of dollars needed to turn around the hotel-casino. The Castaways, however, blamed the Sept. 11 terrorist attacks and the lack of competitiveness in the Boulder Strip market for the inability to repay the $20 million loan. Attorneys for Vestin and Castaways officials could not be reached for comment. Without the additional money, VSS Enterprises "does not have sufficient funds to finance the operations of the Castaways, which could lead to a closure of the Castaways that could be disastrous for the Debtor, its employees and patrons," the court filing said.

Copyright © Las Vegas Sun. Inc. Republished with permission.

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