|By Steve Green, Las Vegas
SunMcClatchy-Tribune Regional News
Nov. 29, 2011--The Hooters hotel-casino in Las Vegas will be sold at auction under a deal disclosed in U.S. Bankruptcy Court on Tuesday.
The 696-room property on Tropicana Avenue, just east of the Las Vegas Strip, filed for Chapter 11 bankruptcy reorganization and protection on Aug. 1.
The bankruptcy was filed to block a foreclosure threatened by Canpartners Realty Holding Company IV, holder of $178 million of Hooters' $181 million face value in debt.
Canpartners is part of the $20 billion investment company Canyon Capital Realty Advisors of Los Angeles.
Since the bankruptcy, Canpartners and Hooters have fought repeatedly.
Canpartners has said the bankruptcy is a waste of time and money, as the Hooters resort is so far underwater on its mortgage that reorganization efforts are hopeless. Canpartners says the property is worth no more than about $80 million.
Hooters has repeatedly countered that it should be allowed to reorganize its debts and seek equity capital.
During a hearing Monday, Hooters attorney Gerald Gordon of the Las Vegas law firm Gordon Silver told Judge Bruce Markell that Hooters and Canpartners have now agreed on plans for the property to be auctioned by Feb. 17. The court hasn't yet finalized the sales process or actual auction date.
As part of the agreement, Canpartners isn't objecting to a request by Hooters that its period to exclusively propose a plan of reorganization by extended indefinitely from Monday. This helps Hooters by preventing the filing of a rogue reorganization plan that would be a distraction to the sales process.
Innovation Capital LLC of El Segundo, Calif., has been marketing the property to potential buyers and it may bring some bidders to the table, though Canpartners appears to have the inside track at the auction.
That's because Canpartners can essentially foreclose on the property by submitting a "credit bid," or a bid based on the Hooters debt it owns.
"We'll work with the interested bidders and Canyon," Gordon said. "The issue is to have an orderly transition."
As in other recent casino bankruptcy auctions, a "stalking horse" bidder and bid amount may be designated, and that would be the minimum bid to beat, Gordon said.
"You get the best deal you can get," he said in discussing the process.
In abandoning efforts to seek investors to team with the property's existing owners, Hooters appears to have come to the conclusion that this wouldn't make sense given existing ownership's reluctance to pump more capital into the property.
That's an argument made last month in court by local casino broker John Knott, who noted Hooters is so far underwater with its creditors that "it's a stretch to expect a recapitalization to be successful."
Attorneys said an issue that may need to be litigated before the auction is whether Canpartners, should it acquire the property, be able to assert claims for a "deficiency judgment" -- its losses on paper based on the difference between the amount of debt it holds and the sales price of the property.
The Nevada Legislature has limited such deficiency claims to the amount investors actually paid for the debt rather than its face value.
That could affect Canpartners, as Hooters has complained that Canpartners picked up most of its Hooters debt for just 22 cents on the dollar.
The Nevada Supreme Court and some of the Nevada bankruptcy judges are already considering challenges to AB273, the Nevada law limiting deficiency judgments by investors in distressed debt.
(c)2011 the Las Vegas Sun (Las Vegas, Nev.)
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