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Castaways sinking?

Jul 1, 2003 7:40 AM

Besides an inability to pay its mortgage interest, the Castaways Hotel owes $3 million in back payroll taxes to the IRS and hasn’t paid other bills in months, according to a source close to the hotel’s cash flow problems.

Moreover, the Boulder Highway casino had to cancel last Saturday’s fight card because of the lack of funds, and it’s possible Holiday Inn will pull out of a deal to run the hotel.

The inability of Castaways owner VSS Enterprises to cover federal payroll taxes and make payments on a $20 million loan from real estate lender Vestin Mortgage led to a Chapter 11 bankruptcy filing last week.

A source close to the hotel operations said a bankruptcy sale may not even cover the hotel’s outstanding debts.

"I have no idea what the value of the Castaways is," said the source, who commented on condition of anonymity. "I don’t think that $20 million would cover it all."

The three partners in VSS, who have owned and operated the 447-room Castaways since 2000, have declined to give statements about the troubled hotel-casino to reporters.

Meanwhile, a spokesman for Vestin Mortgage complained that VSS’s bankruptcy filing, and subsequent approval for a new $1 million loan from USA Capital, could put Vestin’s investment at risk.

"They defaulted on the payment of the loan when it became due," said Steve Stern, executive vice president of Vestin. "(The loan) was extended in March. Vestin called (VSS late last month) and said ”˜We don’t want to do this anymore.’ We immediately instituted foreclosure."

But that foreclosure process will now have to wait since the Castaways has gone into bankruptcy.

The Castaways is the former Showboat hotel on Boulder Highway near downtown Las Vegas.

The hotel-casino was experiencing losses for years when VSS bought the property for $23.5 million in 2000, after previous owners had just spent $25 million on renovations over the previous five years.

Before obtaining the Vestin loan, VSS invested a total of $26 million into the casino and changed its name to the Castaways, the name of a former casino on the Strip where The Mirage casino is now located.