Scott LaPorta, the cfo of Park Place Entertainment, strongly hinted to BondWeek last week that the company will play a role in restructuring Aladdin Gaming, a competitor which filed for Chapter 11 bankruptcy protection on Sept. 30. Such a move by Park Place, which owns one-third of Aladdin's outstanding bonds, could have a significant impact on their value. The $221.5 million zero coupon notes of '10 (Ca/CC), which were to go cash pay in 2003, fell from a range of 19-20 to 15 after the attacks. LaPorta declined comment on the reasoning behind why his company feels it can lead a turnaround for Aladdin. LaPorta says Park Place purchased the bonds because it considered them a good value even if Aladdin were to end up in Chapter 11. "We thought we could be helpful; what being helpful means remains to be seen," he says, adding only that investors should "stay tuned."
High-yield investors had broadly assumed Park Place would be reluctant to attempt to rescue the failing casino and hotel due to the weaker business climate for Las Vegas in the wake of the Sept. 11 attacks, according to Jacques Cornet, analyst at CIBC World Markets.
Andrew Susser, gaming analyst and co-head of research at Banc of America Securities, is one of several analysts and investors who had said that the outlook for Aladdin bondholders was bleak, given the substantial amount of senior bank debt that stands in front of them.
CIBC'S Cornet says that the involvement of Park Place would give bondholders some bargaining room with the banks, since its management has proven itself competent in running a casino. He believes it will still require an injection of $100-150 million to give Aladdin a chance to turn a profit--an investment Park Place could exchange for a 50% equity stake in the company. LaPorta declined comment on such a move.
Bank lenders, led by Bank of Nova Scotia, have a claim to over $400 million of Aladdin's assets. Rob Mustard, head of loan syndication for Scotia Capital, the bank's capital markets subsidiary, did not return calls. LaPorta declined to comment on whether Park Place is in negotiations with the bank lenders.