Nochi Dankner and Yitzhak Tshuva are in advanced talks on a debt settlement for their planned Plaza casino and hotel project in Las Vegas. The syndicate that financed the purchase of the land for their grandiose project, which has never gotten off the ground, include three Israeli financial institutions: Harel Insurance Investments and Financial Services Ltd. (TASE: HARL),Bank Hapoalim (TASE: POLI), and Mizrahi Tefahot Bank (TASE:MZTF).
Ahead of the scheduled repayment of the 2007 loan, Tshuva's Elad Properties and Dankner's IDB Holding Corp. Ltd. (TASE:IDBH) units IDB Development Corporation and its subsidiary Property and Building Ltd. (TASE: PTBL), are in talks with the lenders to restructure the debt, which will reportedly include a 45-60% haircut.
Credit Suisse Group AG (NYSE: CS; SWX: CSGN; XETRA: CSGZ) heads the banking syndicate, which mainly comprises foreign banks. IDB subsidiary Koor Industries Ltd. (TASE:KOR) is a shareholder in Credit Suisse, and IDB is struggling financially in part due to the failed investment in the bank and because of the Plaza project.
IDB and Elad bought the land on the Las Vegas strip in November 2007, and demolished the New Frontier Casino that occupied the site. They planned to build the Plaza hotel and casino at an investment of $5-7 billion. The companies paid $1.2 billion in equal shares for the land and old casino, taking a $625 million loan from the banking syndicate to partly finance the acquisition. Israeli financial institutions provided $100 million of the loan, half by Harel and one quarter each by Bank Hapoalim and Mizrahi Tefahot Bank.
The US real estate crisis, which hit Las Vegas especially hard, took its toll on Dankner and Tshuva, forcing their companies to write off a substantial part of their investment in the Plaza project.
Market sources believe that Dankner and Tshuva are proposing two alternatives to the lenders. The first is to repay part of the loan at 50 cents on the dollar to the holders of the senior debt, and 10 cents on the dollar to the holders of the subordinate debt. They will make the payments from equity and by raising $250-350 million in new debt. This proposal amounts to a 45-60% haircut for the debt holders.
The second proposal includes a ten-year moratorium on debt principle, at which point it will be repaid in full. During this period, IDB and Elad will make the scheduled interest payments.
Another option is not to repay the loan and for the lenders to seize the property. The original loan is a non-recourse loan, against which the lenders have a lien on the property.
A source involved in the matter said, "The project's owners don’t want to abandon it, and they still believe in it. They want to reach a settlement rather than lose the land. They're determined not to lose the project."
IDB and Elad's joint project company has already written off $500 million from the Plaza project's value, which is now booked at a value of just $700 million, against which there is a $625 million debt. The balance of Dankner and Tshuva's equity, which has not yet been written off, is less than $100 million. For the first time, the project company had a going concern warning attached to its financial report for 2011.
Published by Globes [online], Israel business news - www.globes-online.com - on May 16, 2012
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