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Regent Remains in Bankruptcy; Bridge Financing is Approved

LAS VEGAS, Nevada – Jan. 24, 2001 -- A bankruptcy judge has approved plans by creditors of the Regent Las Vegas to lend the Summerlin hotel-casino $20 million, a critical step in keeping the Regent open while its bankruptcy case proceeds.

However, contrary to a published report, the property remains under Chapter 11 bankruptcy protection -- and will stay that way until a reorganization plan is approved by the court. It is believed this plan will most likely result in the Regent's sale.

"They're making great strides in their bankruptcy, positioning themselves to emerge from Chapter 11," said Candace Carlyon, attorney representing a committee of the Regent's mortgage note holders. "(The loan) was a very significant and positive step. I'd certainly like to say the Chapter 11 has ended, but it would be inaccurate to say that."

If the bankruptcy were lifted, the property would immediately have to resume interest and principal payments on its debt, which exceeds $300 million. Most participants doubt that a sale of the property will generate enough to repay all creditors in full.

Tuesday's approval by Judge Robert Jones is a significant step in the bankruptcy process, as it ensures the Regent will remain open while the property is marketed to potential buyers.

"This property has to get on the market, and we have to start the process soon," said Frank Merola, attorney for the Regent.

Financing will be provided by a group of mortgage noteholders in three phases, at an interest rate of 11 percent. Up to $16.5 million in financing will be available to the property in the first phase, which runs through May 15.

The group first agreed to lend the Regent the $20 million when it filed for bankruptcy in November, but Jones rejected the offer, claiming some of the terms were too draconian.

"I took a bit of a gamble, but there were terms I could not live with," Jones said toward the end of Tuesday's court hearing. "Whether that was wise or not will be told if we can sell the property at a reasonable value or not.

"We have to get this behind us to get to the critical phase, the sale of this property."

The Regent's ability to negotiate a much more favorable loan was made possible by a competing bid by Foothill Capital Corp., a subsidiary of Wells Fargo Bank. Since Foothill would have moved ahead of the mortgage holders if it loaned the Regent the $20 million, the creditors negotiated a counter-offer.

The original loan required the Regent to be sold no later than March 30; the new loan agreement allows a sale to occur and the creditors repaid as late as Sept. 30. Missing this date won't necessarily result in default, so long as the Regent uses its "best efforts" to meet the deadlines.

The creditors also dropped terms that required the Regent to make payments on interest owed before the Regent declared bankruptcy. As a result, an additional $7 million in cash will be available to fund operations.

Ironically, Regent attorneys say the property doesn't need to borrow cash at the moment, since the property's performance has improved since its November bankruptcy due to cost-cutting and efforts to market the property to locals.

The Regent finished $2 million ahead of projections over the last six weeks of 2000, and is now operating in the black, Merola said. However, losses are still projected in the coming months, and Regent attorneys say the loan is critical to ensure the property can meet any shortfalls and stay open.

Lenard Schwartzer, an attorney representing an unofficial committee of mechanics lien holders against the Regent, seized on this point as a reason to delay approval of the financing while some terms were examined. Schwartzer protested that half of the funds would be used for interest payments to the mortgage holders and for attorney's fees -- and that the loan put other creditors even further back in line for repayment.

"(The current financial situation) is not an emergency at this point," Schwartzer said. "At this point, the court has no evidence (the loan) makes any sense. Unless the property sells for $175 million, there's no money whatsoever for unsecured creditors."

"This is keeping the bankruptcy case going rather than anything else," Schwartzer said afterward. "The day this case was filed, everyone agreed the most important thing was for the property to be sold. They're not going to be able to reorganize themselves. And up until now, the debtor hasn't done anything to get the property sold. They keep worrying about these things, the financing, rather than worrying about getting the property sold."

But Jones turned aside arguments to wait any longer on a financing decision.

"This must be resolved," Jones said. "We've reached the point where the court cannot risk going any further."

With financing secured, Merola said active talks will begin with prospective buyers.

"We've already been in contact with some people," Merola said. "The marketing process will start as soon as possible."

vSources familiar with the matter say that interested parties include Station Casinos Inc. and financier Carl Icahn, owner of the Stratosphere, Arizona Charlie's and Arizona Charlie's East. Icahn also holds a position in the Regent's mortgage notes.

"I can't comment on exactly who we talked to, but those two are certainly very logical buyers for this property," Merola said.

Swiss Casinos of America, the parent company of the Regent, also isn't being ruled out by sources familiar with the situation. The company's equity in the Regent is now considered worthless -- but Swiss Casinos could still bid in bankruptcy court to buy the property out of bankruptcy.

"Their money spends as good as anyone's, and we'd be interested in purchase offers from anyone," Carlyon said.

John Tipton, president and chief executive of Swiss Casinos, made it clear his company hasn't given up on maintaining control of the property.

"We're still interested in maintaining our interest in the property and seeing the property be successful," Tipton said.

Tipton attended Tuesday's hearings as Swiss Casinos received permission to loan $3 million to the Regent for a controversial purpose -- for legal fees the Regent needs to continue its $200 million lawsuit against J.A. Jones Construction Co., the Regent's general contractor.

The Regent blames J.A. Jones for delays in opening the property in 1999, and says those delays contributed to its bankruptcy. J.A. Jones has countersued for $28 million in unpaid work. Earlier this month, Jones lifted an automatic stay that had prevented the lawsuits from proceeding while the Regent was under bankruptcy protection.

Jones also partially lifted a stay on mechanics lien litigation proceeding against the Regent in state court. A state judge will now proceed to determine if the lienholders should move ahead of other creditors for repayment -- but is still stayed from determining the validity and amount of the lien claims.

Swiss Casinos is arguing that its lawsuit against J.A. Jones could be a valuable asset -- one that might produce enough cash to pay off all claims, should the Regent prevail.

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