The main creditor of the Hooters Las Vegas resort is stepping up efforts to foreclose on the bankrupt property, again arguing Hooters is wasting money as it attempts to reorganize in bankruptcy.
The creditor, Canpartners Realty Holding Company IV LLC, on Tuesday fired off its latest blast at Hooters in U.S. Bankruptcy Court for Nevada.
This blast was in the form of a motion asking that Hooters be required to immediately set aside $2 million to pay the bankruptcy claims of some 300 trade creditors including small businesses and individuals.
That way, Canpartners said, Hooters will be blocked from hoarding cash for use in hopeless efforts to reorganize – and the bankruptcy court can focus on the two-party dispute between Hooters and Canpartners.
One of the reasons a reorganization is hopeless, Canpartners reiterated in Tuesday's filing, is that the Hooters casino brand has failed in Las Vegas and the property desperately needs to be repositioned.
While the Hooters casino argues its problems are related to the global recession, critics point out its business model showcasing young women in tight-fitting shorts and tops is far from unique in Las Vegas. Cocktail waitresses dressed provocatively were commonplace in casinos on and off the Las Vegas Strip decades before the Hooters brand arrived in the city.
The 696-room Hooters, which filed for Chapter 11 bankruptcy reorganization and protection on Aug. 1 to block a foreclosure attempt by Canpartners, has disputed charges that its reorganization efforts are hopeless and has tried to portray Canpartners as an opportunistic investor in its distressed debt – saying Canpartners picked up $127.5 million of the debt for just 22 cents on the dollar.
Canpartners, in Tuesday's filing, said Bankruptcy Judge Bruce Markell should require Hooters to immediately pay some $1.7 million in routine business claims to the trade creditors. Some $747,000 of that is owed to slot machine and gaming systems supplier International Game Technology, Canpartners said.
The remainder of the approximately 300 creditors include about 150 small businesses and individuals in Nevada and about 50 in California, with the rest spread around the country.
"Debtors have a fiduciary duty to their creditors, and the instant motion provides for a greater return to the creditors than could be hoped for if done through a (reorganization) plan," Canpartners' filing said.
Canpartners said that while Hooters may write the checks to pay these creditors, it's actually Canpartners that will bear the expense as Hooters is holding Canpartners' cash collateral and Canpartners and other note holders have a "deficiency claim" against Hooters of nearly $106 million.
That's the difference between the property's debt of $181 million and its estimated value of $75 million. Canpartners says it holds more than 97 percent of the Hooters debt.
Canpartners' attorneys argued in Tuesday's filing that Hooters is holding some $9.9 million in cash.
"Equity dictates that debtors should not be permitted to maintain this outsized war chest while the holders of the non-Canpartners claims are trapped as pawns in these cases without payment," Canpartners said in its filing.
Calling payments to IGT and the small creditors the "right thing to do," Canpartners said the payments would "put approximately $1.7 million into the hands of hundreds of individuals and small or mid-sized businesses" while providing a $300,000 reserve for additional small trade claims.
"Granting the motion will ensure that the holders of the non-Canpartners claims will receive 100 cents on the dollar immediately, rather than mere pennies on the dollar after substantial delay" of months or years, Canpartners said. "Because the majority of the holders of non-Canpartners claims are individuals or small- or mid-sized businesses (many of them local), prompt payment in full likely would be very meaningful to those creditors."
Under the bankruptcy code, this will "satisfy Congress's desire that all creditors be paid quickly," Canpartners said in its filing.
If the motion is approved, Canpartners said it plans to seek dismissal of the Hooters' bankruptcy case and/or seek permission to foreclose on the property. That would avoid the need for a contentious hearing in November on whether Hooters can continue using Canpartners' cash collateral.
Attorneys for Hooters haven't yet responded to this filing, but they're expected to again argue Hooters should have the right to spend money seeking investors or a sale of the property and that a Canpartners' foreclosure is not a foregone conclusion.
Hooters, in the meantime, filed a financial report showing it lost about $40,000 in August on net revenue of $3.6 million.