Icahn: Arizona Charlie's a good value

Carl Icahn wants the Stratosphere, he wants Arizona Charlie's and he wants a Las Vegas home.

On one count, at least, Icahn has what he wants.

Icahn has purchased a 5-bedroom, 7 1/2 bathroom house in the Tournament Hills section of Summerlin for $2.7 million. The 9,600-square-foot frame stucco house was owned previously by John Goolsby, president and chief executive of Howard Hughes Corp.

In an interview this week, Icahn declined to comment on the house.

"I never comment on my personal buying or selling homes or anything," the notorious financier said.

But Icahn did make it clear that he is intent on taking control of the bankrupt Arizona Charlie's hotel-casino. Icahn's lawyers have been fighting Becker Gaming, Arizona Charlie's owner, for control of the resort in a series of acrimonious bankruptcy court hearings over the past several weeks.

"I'm absolutely interested in taking it over," Icahn said of Arizona Charlie's. "I think it's a good value."

Icahn is also on the verge of taking over the bankrupt Stratosphere Hotel and Casino. A hearing in the Stratosphere case is scheduled for May 15.

While his house is purchased and his Stratosphere plans appear to be proceeding smoothly, Icahn is having a much harder time with Arizona Charlie's. Becker Gaming head Bruce Becker is as committed to retaining control of Arizona Charlie's as Icahn is of taking the resort over.

"I think we'll hang onto it," Becker, who is also Arizona Charlie's president and chief executive officer, said.

Icahn owns 51.3 percent of Arizona Charlie's mortgage debt, which he has purchased since the resort declared bankruptcy. Station Casinos Inc., which is also interested in the resort, owns a small percentage of Arizona Charlie's mortgage notes.

Both Icahn's High River L.P. and Station Casinos are expected to file competing reorganization plans for Arizona Charlie's. The plans will be sent to the resort's creditors as alternatives to Becker's plan, which Icahn and Station both have attacked as unworkable.

But the Becker camp is confident its plan will prevail, pointing to a financing commitment of $70.5 million, several bankruptcy-court rulings in their favor and promises from several classes of creditors to vote for their plan.

"I feel very good about our legal prospects in this case," John Clemency, an attorney representing Becker, said.

Becker is unabashed in characterizing Icahn as a corporate raider who bought his Arizona Charlie's debt cheap and stands to make a handsome profit from the Becker reorganization plan.

"A lot of (the noteholders) are people that have come in and bought the notes at a significant discount," Clemency said.

Icahn used a similar debt-buying technique to gain control of the Stratosphere. If he does end up in control of Arizona Charlie's, Icahn will still have the Becker clan to deal with: Becker's siblings own the land Arizona Charlie's sits on, and they control the resort's parking-lot leases.

"That's something they have to deal with, and those leases are up June 30," Becker said.

"They're inclined to deal with Bruce on favorable terms, and they're not inclined to deal with hostile parties on favorable terms," Clemency said.

Icahn declined to comment on Becker's lease strategy, reiterating his desire to run the resort.

"I'm happy to take it and I think we can build it up," Icahn said. "I intend to put some money into it."

Icahn declined to specify what changes he has in mind for Arizona Charlie's. A Station Casinos spokesman said the company is still evaluating its plans.

Arizona Charlie's, with 258 rooms and 940 employees, declared bankruptcy in November largely as a result of Becker Gaming's inability to sell or get a license to operate its Missouri riverboat, the Capitol Queen. Arizona Charlie's had guaranteed Capitol Queen debt notes worth about $20 million, and it declared bankruptcy to retain its ability to contest the validity of those guarantees.

Arizona Charlie's reorganization plan calls for repaying mortgage noteholders -- such as Icahn -- $43 million to $45 million of the company's total $55 million debt. Several other claims against the company would be paid in full, including administrative claims totaling $1 million, gaming-equipment claims totalling $2.4 million, trade-vendor claims totalling $2 million, and taxes and smaller claims totalling $560,000.

In a major change from earlier incarnations, the company's latest plan calls for settling in full a separate unsecured $19 million claim filed by Arizona Charlie's noteholders over a period of five years. Becker had previously offered a 10 percent to 50 percent payment. Personal-injury claims of $270,000 and a $2 million claim filed by Capitol Queen noteholders would be settled on the same terms.

Becker said he is close to selling the Capitol Queen to the Davis Companies for $5.7 million to $5.9 million. A previous agreement to sell the riverboat to RGI Group for $6.15 million fell though after an RGI inspection.

Under Becker's plan, Becker Gaming would continue to own Arizona Charlie's.

According to Chapter 11 bankruptcy law, companies in bankruptcy have the exclusive right to offer reorganization plans to their creditors for the first 180 days they are in bankruptcy. After that time, creditors may step in and offer their own reorganization plans.

For voting purposes, creditors are grouped into classes according to their size and type. For instance, mortgage noteholders are often grouped into a class separate from trade creditors, who provide everything from food to gaming machines.

Only those classes of creditors who will not be paid in full are allowed to vote on a plan. A majority of these voting classes is needed to approve a plan. If a majority does not approve a plan, a judge can still force creditors to accept it through a rare procedure called cram-down.

Despite challenges from Icahn, Arizona Charlie's reorganization plan has been approved by U.S. Bankruptcy Court Judge Linda Riegle and is ready to be mailed to creditors. But Riegle ruled earlier this week that all three plans will be mailed together to limit confusion and to let creditors choose freely among the three alternatives.

As it stands, Icahn can prevent three of the 14 voting classes from approving Becker's plan. Clemency declined to speculate how the rest of the classes will vote, other than to say several have already pledged their support to Becker.

Though neither Icahn nor Station Casinos has yet filed a formal plan with the bankruptcy court, they have filed term sheets indicating what their plans will offer.

Icahn's plan differs from Becker's primarily in its treatment of mortgage noteholders. Rather than a cash payment, noteholders would receive 90 percent of the equity in a reorganized Arizona Charlie's. Capitol Queen noteholders would receive the remaining 10 percent of Arizona Charlie's equity.

According to its term sheet, Station Casinos would pay mortgage noteholders $47 million and Capitol Queen noteholders $1 million. Station's total package would be worth $56 million.

Under both the Icahn and Station Casinos plans, Becker Gaming would end up with no interest in a reorganized Arizona Charlie's. Formal plan filings are due May 8, and final details could differ significantly from the term sheets.

Riegle this week told Icahn and Station Casinos that their plans must detail how and when they acquired their debt interests in Arizona Charlie's, and what they plan to do with the resort. Both bought their debt after the company entered bankruptcy.

Riegle also noted that an Icahn takeover might result in a temporary shutdown of the casino while Icahn seeks approval from Nevada gaming regulators to own a gaming establishment.

Icahn said he is seeking potential managers to run Arizona Charlie's for him while he is being certified. He also said he has filed for a gaming license in conjunction with his takeover of the Stratosphere. He declined to say where his license is in the approval process.

Icahn sees his bid for Arizona Charlie's as a move to capitalize on a change in the Las Vegas gaming market.

"I think with the Strip building up, there's going to be more and more people going with the locals," he said.

Icahn also clearly sees his bid for Arizona Charlie's as a battle between himself and Station Casinos.

"I'm not really taking it over from Becker," Icahn said. "I'm saying, hey, the price Station's paying is certainly not enough."

Icahn said he has no current plans to buy other Las Vegas casinos.

"Right now, no," he said.

But Clemency said he doesn't think Icahn will end up buying even Arizona Charlie's. With an approved plan in the bag and ready for mailing, Becker has cleared hurdles Icahn hasn't even approached, he said.

"I think we'll prevail on that," Clemency said.

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