|By Steve Green, Las Vegas
SunMcClatchy-Tribune Regional News
Sept. 01, 2011--The main creditor of the bankrupt Hooters Las Vegas casino resort says the Hooters brand has failed there and it's time for management to give up on seeking a white knight to bail out the property.
The creditor is Canpartners Realty Holding Co. IV, an affiliate of investment company Canyon Capital Realty Advisors of Los Angeles.
Canpartners filed papers in U.S. Bankruptcy Court in Las Vegas on Wednesday opposing plans by Hooters casino to spend potentially hundreds of thousands of dollars looking for capital, a merger partner or a buyer.
Canpartners says the 696-room property on Tropicana Avenue, just east of the Las Vegas Strip, is worth some $70 million.
Yet it's encumbered by debt totaling more than $180 million, at least on paper, and Canpartners holds the vast majority of that debt, the creditor said in its filing. Hooters, however, regularly points out that Canpartners acquired much of that debt at a deep discount -- an argument intended to give it leverage against Canpartners as a debt investor. The amount of that discount hasn't been disclosed.
Plans by Hooters to hire Innovation Capital LLC of El Segundo, Calif., to find money for the property or a buyer would result in a waste of time and potentially hundreds of thousands of dollars of Canpartners' cash collateral held by the casino-hotel, Canpartners complained.
Besides Hooters paying Innovation $35,000 per month, Innovation could earn hundreds of thousands of dollars in "exorbitant" success fees -- including fees that may be payable even if Canpartners forecloses or a transaction is consummated with an investor not brought to the table by Innovation, Canpartners complained.
"Over the past three years, the debtors, with the help of an army of high-priced restructuring professionals and financial analysts, including (law firms) Gordon Silver, Greenberg Traurig LLP, (and advisors) Jefferies & Co., Alvarez & Marsal, Innovation and Gaming Research Inc., have spent more than $3 million attempting to negotiate or otherwise effectuate a reorganization, sale, capital raise or other restructuring transaction outside of bankruptcy. Despite years of opportunity, massive expenditures and substantial legal and financial advisory firepower (more firepower than likely was warranted), the debtors' efforts bore no fruit," Canpartners complained in its filing.
"There is thus simply no need to spend any more time, or any more of Canpartners' money, on a redundant advisor, who will seek to undertake a lengthy process that has already been completed," Canpartners said, adding if this is an effort to extract concessions from Canpartners, that won't happen.
"One interpretation of the debtors' proposed retention of Innovation is that they intend to forestall the inevitable foreclosure by Canpartners for as long as possible, and spend as much of Canpartners' funds as possible, in hopes of finding a white knight that will enable existing equity (which is more than $100 million out of the money under any valuation) and management (who raised their own salaries substantially just a few days before bankruptcy) to keep their interests in the company and padded salaries, respectively," Canpartners charged.
Canpartners went on to complain that efforts to market the hotel under the Hooters brand are a waste of time, as consultants found three years ago that the property should be rebranded because:
--The Hooters brand limits the property's ability to capture its share of the market.
--Most potential visitors would be more inclined to stay at the property if the Hooters name was replaced with a three or four-star nationally recognized hotel brand.
--The Hooters brand does not resonate with female visitors who are the primary decision makers when choosing a Las Vegas hotel.
Canpartners also said consultants reported in December 2008 the property needed $40 million in renovations and to reposition it, but Hooters owners have been unable to find the capital for such improvements.
Canpartners went on to argue that during the $3 million restructuring effort over the past three years, the Hooters casino owners talked to a variety of potential acquirers or investors with no success.
"This outcome is not surprising. The debtors and their management held themselves out to investors, dating back to their initial efforts to raise capital in 2005, as being uniquely qualified to operate and manage a Hooters branded casino, based on their experience as some of the 'founding fathers' of the Hooters restaurant concept. It has become clear to all, including the debtors, their management and their advisors, that the Hooters casino concept has failed. In light of the many qualified and highly-skilled casino and restaurant operators available to the universe of potential casino, hotel and restaurant investors, it is therefore unlikely that any potential investor would view the debtors' existing leadership as integral to any non-Hooters repositioning of the debtors' property," Canpartners said.
"There would thus be little incentive for any party to provide further investment in the debtors and their current team," the filing said.
Hooters' attorneys have not yet responded to this filing and it's not known when Bankruptcy Judge Bruce Markell will rule on the property's request that it spend funds looking for capital or a sale or merger partner.
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