Aladdin Gaming faces possible bankruptcy

By Peter Heap

New York, Sept. 21 - Aladdin Gaming Holding LLC said it faces the possibility of bankruptcy after financing agreements failed to become effective.

The casino operator said in a filing with the Securities and Exchange Commission late Thursday it failed to make a payment due on its loan for furniture, fixtures and equipment, a default that triggered an possible additional default on its bank credit facility.

While Aladdin has cut back its operations and reduced staff, it said it does not have enough cash to continue.

The company's bank lenders said they are willing to consider providing credit for working capital needs but only if Aladdin files for bankruptcy protection.

Aladdin had been negotiating an eighth amendment to the bank credit facility of its Aladdin Gaming, LLC unit. Agreement was reached with the lenders led by administrative agent The Bank of Nova Scotia, with the terms to be effective June 30, 2001.

But Aladdin said that amendment has still not become effective.

In addition, an amendment was negotiated to the keep-well agreement between the banks and Aladdin's sponsors - Aladdin Holdings, LLC; Aladdin Bazaar Holdings, LLC; London Clubs International plc and the Trust under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust") - which would have reduced the sponsors' obligations for the fiscal quarters ending June 30, 2001, Sept. 30, 2001, Dec. 31, 2001 and March 31, 2002.

However Aladdin said the sponsors did not make the payment due under the keep-well agreement on Aug. 28.

That put Aladdin Gaming in default on the fixed charge coverage ratio, the leverage ratio, the interest coverage ratio and minimum EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortization) covenants in its bank facility and furniture and fixtures facility. The sponsors' failure to make the payment is also a default on the bank facility.

The amount Aladdin failed to pay on its furniture and fixtures financing was $4.3 million due on Sept. 4. The facility is an $80 million term loan and lease financing of its furniture, fixtures and equipment with General Electric Capital Corp. and General Motors Acceptance Corp.

These lenders notified the bank lenders under an intercreditor agreement, giving the bank lenders 10 days to elect to cure the default. Aladdin Gaming said that period expires Sept. 28.

If the banks do not cure the default, GE Capital and GMAC can terminate Aladdin Gaming's right to use leased equipment - which includes gaming machines - and can exercise the rights of a secured creditor, Aladdin said in the SEC filing.

A default under the bank facility allows the lenders to accelerate the loans, if they choose.

If lenders on either of the financings exercise their remedies, Aladdin said it would likely file for Chapter 11 protection. That would require approval of the holders of 80% of the membership interests.

Aladdin said that to conserve cash and reduce expenses it has curtailed food and beverage operations, temporarily closed the St. James Restaurant and substantially reduced staff in all operating and administrative departments.

But it added: "Gaming's cash on hand, together with cash projected to be generated from operating activities, is not sufficient to permit Gaming to continue to conduct business activities."

Without a cash infusion it may have to cease operating.

End

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