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London Clubs International and the Sommer Family Trust are the Biggest Losers in Aladdin Bankruptcy
By Jeff Simpson, Las Vegas Review-Journal
Knight Ridder/Tribune Business News 

Jul. 5, 2003 - The Planet Hollywood group's winning offer to buy the Aladdin produced a number of winners and losers on the road to its expected bankruptcy sale. 

Big losers were Aladdin's original investors and creditors, while Planet Hollywood Chairman Robert Earl, Aladdin management and its lawyers will benefit from the deal, insiders said. 

OpBiz, the name the winning bidder used to front its offer to buy Aladdin for $635 million, placed a required $5 million deposit in escrow June 23, Aladdin Gaming lawyer Gerald Gordon said. 

The winning bidders and Aladdin officials are next slated to appear in bankruptcy court for disclosure statements Tuesday. 

Aladdin Gaming's reorganization plan revolving around the Planet Hollywood purchase is expected to be confirmed in late August or early September, Gordon added. 

The OpBiz partners plan to continue operating the resort under the Aladdin name until its $90 million or more of new investment in the property is completed, at which time the property will have a blowout grand opening under its new name. 

But with details of a proposed reorganization plan now known, industry observers said there are clear winners and losers involved in the bankruptcy and sale of the $1.05 billion hotel-casino. 

The industry insiders' scorecard: 

-- London Clubs International, the United Kingdom-based casino operator, and the Jack Sommer and the Sommer Family Trust are the bankruptcy's biggest losers. 

London Clubs' initial $50 million investment gave it a 25 percent ownership stake in Aladdin Gaming. When partner the Sommer Family Trust was unable to fund its share of Aladdin cost overruns, London Clubs contributed almost $130 million more in exchange for soon-to-be-worthless Aladdin equity. 

The investment has proved disastrous for the company as well. Chairman Alan Goodenough resigned and London Clubs has had to contemplate selling off some of its prized London gaming establishments. 

Jack Sommer appeared in U.S. Bankruptcy Court on June 20. His family trust's initial investment in the original Aladdin, and its investment in the new megaresort will all be wiped out after the sale. 

Sommer's decision to leave the Aladdin's performing arts venue in place when he imploded the old hotel tower was a major mistake, some observers said, leading to dozens of subsequent design flaws. 

Even so, Sommer wasn't feeling too bad about the fate of his billion-dollar baby. 

"There's no melancholy -- the melancholy happened after September 11, (2001)," Sommer said, noting that the Sommer family has been in the development business since 1885. 

Sommer said he plans to stay involved. 

All of the Aladdin's creditors were net losers, but insiders suggest those losses could have been much worse. 

-- Aladdin's secured creditors, including bankers and lessors, are expected to receive $510 million in new debt to replace a like amount of existing Aladdin debt. 

The debt is expected to trade below par, meaning their $510 million in new Planet Hollywood Hotel & Casino debt would probably be worth about $430 million. 

They'll lose much of the interest that would have been payable on the Aladdin mortgage notes and slot machine leases, but will presumably benefit from the Planet Hollywood group's planned $90 million cash infusion in the property. 

The secured creditors also received a 2 1/2 percent equity stake, a share that could be valuable if Planet Hollywood makes money. 

The Aladdin's unsecured creditors were owed more than $70 million, and will collect at least $6.75 million under terms of the proposed sale; unsecured creditors typically would have received much less, but all of the creditors were able to reach a joint accord. 

-- Trizec Properties initially invested $250 million for a two-thirds stake in the Desert Passage mall; the Sommer Trust owned the remaining third. Trizec eventually acquired the remaining third. 

The Chicago-based real estate investment trust is now looking to get out of the mall-operating business, and insiders suggest a deal announced in court clearing away many of the Aladdin-Trizec disputes could pave the way for another mall operator. 

-- The biggest potential winner is the group behind the winning Planet Hollywood bid, OpBiz. 

Planet Hollywood Chairman Robert Earl and his partners stand to make a tidy return if they can get billion-dollar performance out of a property they bought for much less. 

The resort could jump-start the Planet Hollywood brand and would give Starwood an enhanced Las Vegas presence. 

Other casino industry executives including Pinnacle Entertainment Chairman Dan Lee have questioned the fairness of the sales process, suggesting the deal was engineered to benefit Earl's group. 

Those involved in the sale deny the claim. 

OpBiz partners need to be licensed by Nevada gaming regulators before the company can acquire the property. 

Among those requiring licensure are: Earl, Doug Teitelbaum of Bay Harbour Management, Barry Sternlicht, chairman of Starwood Hotels and Resorts Worldwide, and former Green Valley Ranch boss Mike Mecca, who'll manage the property. 

Gaming licensing timelines are rarely etched in stone, but, when pressed, Gordon guessed the property would change hands about one year from now. 

The property opened almost three years ago with 4,500 workers but now employs about 2,500. If the current Aladdin employees keep their jobs, as Planet Hollywood executives promise, the current workers would benefit from the sale. The hundreds of laid-off workers who lost their jobs since the opening obviously did not. 

-- The top three Aladdin executives were among the sales process' big victors. President Bill Timmins, Chief Financial Officer Tom Lettero and General Counsel Patty Becker could receive hundreds of thousands in retention bonuses in addition to their salaries for remaining until the sale takes place. 

The three executives are credited with stopping the Aladdin's bleeding in the rough days following the Sept. 11, 2001, terrorist attacks. The billion-dollar-plus property was producing operating cash flow at about a $19 million annual rate, an anemic performance that the Aladdin bosses have boosted to a more respectable $53 million rate. 

The initial weak performance made the sale difficult, Gordon admitted, but the Timmins-led turnaround accelerated the process. 

"What was uncertain was the performance of the property," Gordon said, noting that the improved cash-flow numbers made it much easier for prospective buyers to consider a purchase. 

-- Finally, the lawyers and accountants working on the bankruptcy case will see their incomes drop, but they were winners while the process lasted. 

Twenty-nine lawyers participated in a June 20 conga-line march to note their appearances for the court; professional fees associated with the bankruptcy regularly cost Aladdin more than $1 million per month. 

-----To see more of the Las Vegas Review-Journal, or to subscribe to the newspaper, go to 

(c) 2003, Las Vegas Review-Journal. Distributed by Knight Ridder/Tribune Business News. PHWD, LCI, TRZ, HOT, 


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