‘Foreseeable’ Chapter 11 filing could help Hooters

Even before an initial bankruptcy hearing has been held, gaming industry analysts Tuesday were quick to offer opinions on how the Hooters Hotel on Tropicana Avenue could reposition itself post-bankruptcy to be successful in a crowded Las Vegas market.

The owners, 155 East Tropicana LLC, filed Chapter 11 bankruptcy reorganization to block a threatened foreclosure after the collapse of negotiations over a pre-negotiated restructuring with its largest bondholder .

"While the operating environment in Las Vegas remains challenging for single-asset operators, filing for Chapter 11 could provide the company with an opportunity to restructure (its) debt," Union Gaming Group principal Bill Lerner said in a research report.

Lerner said that given its favorable location close to the Strip, he thinks the property could work in the future, "given the right debt structure, a potential reflagging of the room product and an inflow of new capital into the property."

In its initial filing late Monday in U.S. Bankruptcy Court for Nevada, the company listed assets of $10 million to $50 million, with liabilities of more than $162 million.

A sister company, 155 East Tropicana Finance Corp., also filed for Chapter 11 reorganization. The finance company was formed for the sole purpose of facilitating the financing of Hooters renovations completed in February 2006, according to the bankruptcy filing.

Under Chapter 11, casino companies can continue to operate while they propose a reorganization plan approved by creditors, the bankruptcy court and Nevada gaming regulators.

"We regret that we have been unable to reach an acceptable settlement with our new bondholder," the company said. "We are confident that and orderly and transparent Chapter 11 process will provide the company with the opportunity to properly restructure its balance sheet."

The bankruptcy filing identifies the bondholder as Canpartners Realty Holding Co. IV LLC. Canpartners filed a claim against Hooters last year and since February has been threatening to foreclose on the property, with the latest foreclosure date scheduled for Aug. 8.

"This was foreseeable," said Alex Calderone, a director with Conway MacKenzie Inc., a restructuring and financial advisory firm in Detroit. "Hooters had been struggling for a very long time. It's a surprise they've come this far without filing for bankruptcy."

The bankruptcy filing probably will halt the August foreclosure, analysts said.

Calderone said the company had been hurt by the recession as luxury hotels -- Wynn Las Vegas, Bellagio and Encore -- lowered prices to compete with Hooters, Tropicana and the Hard Rock Hotel.

Hooters features 696 rooms, while its 30,000 square-foot casino houses 760 slot machines and 32 table games. He said the resort's casino isn't large enough to make up for lower income from rooms.

Court records indicate the property needs to restructure about $162.2 million in mortgage and bond debt, plus hundreds of thousands of dollars in trade claims. The 10-page filing didn't disclose what value 155 East Tropicana sets for the property.

With the collapse of the negotiations, Calderone said, Canpartners is now trying to force an outcome.

"At some point, the note holders will own the property," Calderone said. "It's similar to what happened with the Riviera where the new owner converted debt into equity."

The bankruptcy of Riviera Holding Corp. was much easier to complete than Hooters' bankruptcy plans. The Riviera debt was purchased by Barry Sternlicht, who assumed control of the company through a prearranged plan announced last month.

Riviera Holdings bankruptcy reduced its debt from $270 million to $50 million.

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893.