Castaways bought out
of foreclosure

Feb 3, 2004 8:17 AM

The Castaways Hotel & Casino was sold out of foreclosure on Monday for $20.7 million to its primary mortgage holder, Vestin Mortgage.

The hotel-casino and bowling center on Boulder Highway was forced to close its doors last week, following an order by a U.S. Bankruptcy Court judge, which allowed creditors to foreclose on the troubled property.

Nevada Gaming Control Board Chairman Dennis Neilander said about 12 enforcement and audit officers assisted in the shutdown of the property, which had filed for bankruptcy in June.

No one else bid on the property on Monday.

The owners of the Castaways, VSS Enterprises LLC, were in the process of trying to make the Boulder Highway property a public corporation.

A spokesman for Vestin Mortgage, Steve Stern, said the mortgage company would now prepare the Castaways for sale. No price was set, nor was a timetable announced for the planned sale.

But, Stern said, it would cost Vestin Mortage about $60,000 per month to maintain the property, so a sale would be negotiated as quickly as possible.

The end of 2003 marked the completion of the first phase of the Castaways’ original reorganization plan under the previous owners (VSS Enterprises), which called for registering and listing the company’s common stock on NASDAQ.

The hotel, formerly known as the Showboat, has struggled in recent years, mainly the result of heavy competition from other Boulder Strip casinos, namely Arizona Charlie’s East, Boulder Station and Sam’s Town.

VSS Enterprises’ reorganization plan first targeted cutting costs and streamlining operations. Last month, the company received court approval to raise up to $10 million in the form of Debtor’s Certificate secured notes in denominations of $25,000 from qualified investors.

The new borrowing power was to have been used to implement the build-up of the Castaways businesses, including the bowling center, which once hosted world-class tournaments.

Under VSS Enterprises’ proposed reorganization plan, the company offered to exchange $30 million in debt into common stock at $22.50 per share.

Moreover, the company would offer the Debtor’s Certificate holders the opportunity to exchange their Debtor Certificates for common stock and warrants at a conversion rate of $7.50 per share.

With the sale out of foreclosure, those plans are no longer considered viable.

The Castaways historically has generated revenues of $55 to $60 million, which represents about 9% to 10% of the Boulder Strip market. The property caters to the 319,000 residents living immediately adjacent to the casino and draws patronage for its 412-room hotel.

The 180,000-square-foot entertainment and convention facility includes the largest bowling facilities in the world.