Embassy looks to ‘NewCo’
The state line Embassy Suites Hotel developers wish to create a new company to operate the hotel when it emerges from bankruptcy court this spring.
The company, aptly titled “NewCo,” would invest $9 million in cash to pay all unclassified claims against KOAR Tahoe Partners, L.P., the hotel’s developers. The plan would also call for the payment of all taxes, which would give South Lake Tahoe its unpaid room tax dollars.
City Attorney Catherine DiCamillo said the hotel owes the city some back transient occupancy tax.
The group also put forth a recommendation for how much the hotel should be worth when it is revalued as part of the court process.
KPMG Peat Marwick LLP, an independent appraiser hired by the debtors, estimated the hotel’s value at $37.9 million, a little more than half its current $68 million valuation.
City officials have said they hope the court will find the hotel has a value somewhere between KOAR’s lower estimate and the current value.
The city will lose a significant chunk of its property tax increment when the hotel’s value plummets. If the hotel is valued at $50 million, the city will lose about $150,000 per year in property taxes.
The court is expected to rule on the plan and the hotel’s new value sometime in February.
The bankruptcy restructuring plan also seeks to end a two-year-long feud between TurZak, Inc., the hotel’s food and beverage provider, and KOAR. TurZak is currently suing KOAR for more than $1 million.
The restructuring proposition seeks to pay TurZak $800,000 this May and another $200,000 a year later. If not, TurZak will be treated as any other disputed creditor seeking its payment and can seek remedies through the court.
Mitsui Trust and Banking Co., Ltd., the bank which financed the construction loan, is owed more than $50 million.
KOAR proposes to pay Mitsui $6 million in cash plus 10 percent of the hotel’s value toward a secured claim of $43 million. Mitsui also has an unsecured claim of $15 million.
The remaining portion of the bank’s claim would be paid when the hotel is refinanced in 2004. KOAR attorneys said they are confident there will be sufficient funds after the hotel’s refinancing to pay Mitsui $33 million, the amount KOAR expects to owe Mitsui in five years.
Each of the creditors involved in the bankruptcy will have an opportunity to vote on the restructuring plan. Each party has until Feb. 6 to approve or reject the plan.
The creditors committee includes TurZak, K.B. Foster Civil Engineering, of Stateline; Smith and Jones Inc., of Incline Village; Bonanza Produce Co., of Sparks; and Crystal Dairy Foods, Inc., of South Lake Tahoe.
The Embassy Suites Hotel, which opened Dec. 14, 1991, met KOAR’s revenue projections during the first two years of operation, according to the restructuring document. Then, due to the combination of a loss of commercial passenger service at the Lake Tahoe Airport, heavy competition from developing ski resorts and the booming Las Vegas economy, the hotel’s revenues were not sufficient to pay its debt service to the bank.
After the term on the loan expired, KOAR and Mitsui entered court proceedings last spring when Mitsui sought to sell the loan to a third party and several hearings ensued.
El Dorado County Judge Patrick Riley seemingly ruled for KOAR last April when he issued an injunction prohibiting Mitsui from selling the loan and remanding the case for trial. However, KOAR had to make all interest payments current before the dispute could go to trial and put up a bond for Mitsui attorney fees should KOAR have lost in the trial.
KOAR filed for Chapter 11 protection on May 14, 1998.
Despite the court proceedings and controversy surrounding the hotel, it has still managed to turn a profit. According to the restructuring plan, the hotel has brought in $3 million since bankruptcy was declared and is projected to make another $2.3 million by May.
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