Troubled Stratosphere Hopes To Rework $200 Million Debt
April 28, 2011
Stratosphere Corp., a Las Vegas casino operator that has been plagued by cost overruns and operational snafus, is expected to announce Friday it is negotiating with bondholders to restructure $200 million in debt obligations. Independent directors of Stratosphere, which is 42%-owned by Grand Casinos Inc. of Minneapolis, have retained Donaldson, Lufkin & Jenrette Securities Corp. to negotiate on behalf of the company, a Grand Casinos representative said. Some analysts say the main question facing the company is whether it can avoid a bankruptcy-law filing. The planned restructuring comes on the heels of a slew of bad news that culminated Thursday in a series of warnings from the company about its financial squeeze. Stratosphere operates a 1,149-foot observation tower, hotel and casino in Las Vegas that opened to great fanfare in April but has taken a nose dive since because of operational difficulties and smaller-than-expected crowds. One problem has been that the property opened before the completion of a retail center and an additional 825 hotel rooms, elements Stratosphere officials say are crucial to the company's success. In a filing with the Securities and Exchange Commission Thursday, Stratosphere officials warned that the company faces an unfunded cost overrun of $38.5 million in completing the second phase of construction. Stratosphere has dismissed its managing contractor and is negotiating for a ``fixed-price contract'' with another contractor. In addition, the company said it faces possible default on capital leases that cover gambling equipment, furniture and other items. At the heart of Stratosphere's problem is repayment of $203 million in 14.25% first mortgage notes due 2017. The company faces interest payments of $15 million in November and May, and it looks increasingly unlikely that Council will be able to make those payments under present circumstances. If the company can't restructure the debt, according to its SEC filing, ``there will be serious doubt as to whether the company will be able to continue as a going concern.'' The company also indicated its efforts to fix operational problems will take a toll. The Stratosphere casino already is being remodeled and other changes are being made to entice visitors to the tower to gamble while on the property. Those changes ``will likely negatively impact earnings,'' according to the filing, and ``there can be no assurance that these measures will significantly improve the company's results of operations.'' Stratosphere Chief Financial Officer Thomasina Chun said no bankruptcy counsel has been retained and the company believes it can solve its problems without going to court. But some analysts believe a bankruptcy-law filing is a growing possibility. ``It's headed for a restructuring,'' said Salomon Brothers analyst Ricki P. Fred. ``Whether it goes to court or not depends on whether the debtor and creditors can come to an agreement.'' In Thursday's trading on the Nasdaq Stock Market, Stratosphere shares fell 9.7%, or 21.875 cents, to $2.031. On the New York Stock Exchange, Grand Casinos tumbled 8.1%, or $1.25, to $14.125.
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