Premier Entertainment Biloxi $180 million DIP request denied

By Caroline Salls

Pittsburgh, Feb. 2 - Premier Entertainment Biloxi LLC's request for court approval of up to $180 million in debtor-in-possession financing from BHR Holdings, Inc. was denied nearly five months after the motion was filed, according to a Friday filing with the U.S. Bankruptcy Court for the Southern District of Mississippi.

In his opinion, judge Edward R. Gaines said the payment the company looks to make using DIP proceeds would impair or modify rights under Premier's notes indenture and loan documents.

Because the noteholders and indenture trustee "strongly objected" to the DIP motion, Gaines said the course of action that best protects the rights of all parties and the estate is to allow the case to proceed to the confirmation process.

Gaines said the issue of continuation of cash collateral is being handled as a separate matter in the company's Chapter 11 case, with an order to be presented to the court for continuation of the use of cash collateral and insurance proceeds.

In its motion filed on Oct. 9, Premier said the DIP would be used to repay its 10¾% first-mortgage notes due 2012 in an effort to repair, rebuild and reopen the Hard Rock Hotel & Casino Biloxi by Dec. 31, 2007.

According to the motion, without this DIP financing, Premier believes its plans to rebuild and reopen the resort will continue to be stifled by noteholders, who the company said have shown little flexibility or interest in rehabilitating the resort since Hurricane Katrina.

As previously reported, the company's majority noteholders objected in December to the DIP motion, calling it an effort to deprive noteholders of contractual interest bargained for under the notes indenture.

According to the objection, "having been previously unsuccessful in persuading the noteholders to redeem the notes for a discount from the full amount provided under the indenture," Leucadia National Corp., which is the parent company of proposed DIP lender BHR Holdings, Inc., forced the company to file bankruptcy and file the DIP motion "for the transparent purpose of seeking to avoid payment of interest to the noteholders through the term of the notes and/or liability for the prepayment premium."

The noteholders said it is apparent that Leucadia is responsible for the company's failure to obtain adequate hurricane insurance last spring and for manufacturing the dispute that is the centerpiece of the DIP motion.

In addition, the noteholders said Premier cannot demonstrate to the court that the DIP financing is necessary to preserve the assets of the estate.

The noteholders also asked the court to order the company to obtain at least $160 million of catastrophic hurricane insurance by March 1 to guarantee adequate protection to the noteholders.

Premier, a Biloxi, Miss., resort operator, filed for bankruptcy on Sept. 19. Its Chapter 11 case number is 06-50975.

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