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Source: Offer for Bankrupt Aladdin Still On

LAS VEGAS -- California-based casino operators Pinnacle Entertainment and Colony Capital still plan to offer to buy the Aladdin despite recent comments from Pinnacle CEO Dan Lee that his company wasn't currently involved in the talks, an inside source said Monday.

"A bid likely wouldn't be made until late November," said the source, who spoke on condition of anonymity.

Pinnacle's Lee said last week on a conference call for investors and analysts that he and his company have an interest in buying the Aladdin, but only at the right price.

"If we were to do a deal it'd have to be something where we're comfortable its risk-reward works for us," Lee said. "Not too much risk, and pretty good rewards."

During its third quarter that ended Sept. 30, Pinnacle spent about $150,000 on legal fees related to a possible decision to buy the Aladdin, money that Pinnacle charged as an expense rather than as a capital expense because of the uncertainty of completing a deal, Lee said.

"We're aware of the Aladdin," Lee said. "I happen to think Aladdin's fixable. We think it would be possible to make an investment that would provide a really good return, (but) we're not willing to risk the company on it."

Lee said Aladdin creditors stand to benefit by making the bidding process for the property a "feeding frenzy.

"God, I wish I had a dollar for every time the (creditors) called me up and said someone else would pay more than we would," Lee said. "I say, 'That's great. Go take it.' And then they call back in a month and say the same thing."

Pinnacle and Colony are expected in late November to offer about $500 million for the Aladdin along with a commitment to invest about $100 million to renovate the property, the source said.

The Aladdin's bankers would loan Pinnacle and Colony the money to buy the property. The bankers, now owed about $430 million secured by a mortgage on the property, would loan Colony and Pinnacle the money for a five-year term at reduced interest rates.

Part of the deal might involve a third-party hotel operator or a separate hotel brand, but the inside source disputed published reports that claimed the two prospective bidders have already agreed to join with Marriott International to make a three-way bid.

Pinnacle and Colony executives were unavailable Monday for comment.

KPMG Corporate Recovery Services partner Jeff Truitt did not return a Monday phone message. The Aladdin hired Truitt and KPMG to sell the bankrupt property.

Aladdin lawyers have until Dec. 2 to file the property's sales-procedure plan with Bankruptcy Judge Clive Jones, who earlier this month also gave Aladdin bosses until Jan. 30 to try to get the support of property creditors for the plan.

The Aladdin owes secured creditors $540.3 million, including about $70 million for slot loans and leased equipment, $85.2 million to unsecured creditors and $2.6 million in priority tax claims.

In its most recent monthly filing with the bankruptcy court, the 2,567-room property reported that it lost $2.5 million in September after losing $117,768 in August, $2.5 million in July, $3.5 million in June and $423,369 in May.

Cash flow, reflecting earnings before interest, taxes, depreciation and amortization, a widely used gauge of casino-industry profitability, was $2.7 million, compared with $4.1 million in August, $2.4 million in July and $2.1 million in June.

Los Angeles-based Colony Capital owns Resorts International hotel-casino in Atlantic City but owns no Nevada casinos since selling Harveys to Harrah's Entertainment last year for $675 million.

Pinnacle Entertainment operates seven casinos in Louisiana, Mississippi, Indiana, Nevada and Argentina. The company operates the Boomtown casino in Reno.

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