Back in 1990, Congress created the EB-5 program to “stimulate the U.S. economy through job creation and capital investment by foreign investors.” We’ll spare you all of the glorious details but generally speaking, EB-5 investors must (i) invest in new commercial enterprises, (ii) create 10 full-time (35+ hours per week) positions for qualifying employees (e.g., US citizens, lawful permanent residents or other authorized immigrants), and (iii) contribute a sufficient amount of capital, e.g., $1mm or, in an high-unemployment area or rural area, $500k. In exchange for the investment, EB-5 investors are eligible to become lawful permanent residents (read: “green card holders”). Because of the lower threshold, most EB-5 investors invest in the high unemployment or rural area. And about 80% of the total number of EB-5 investors come from South Korea, Taiwan, the UK, and China. The latter - the Chinese - are getting a nice taste of distressed debt these days.
On February 16, the Lucky Dragon Hotel & Casino LLC filed for bankruptcy in the District of Nevada - sparking all kinds of creative headlines:
If you think that’s bad, we guess we’re all lucky that the casino wasn’t named the “Flaming Dragon Hotel & Casino LLC.” We’d end up with all kinds of “Tropic Thunder” references.
But we digress.
Opened in November 2016, the Lucky Dragon was supposed to be “an authentic Asian cultural and gaming experience.” The core target demographic consisted of the local Las Vegas Asian market - including the regional Asian populations of Los Angeles and San Francisco - as well as international Asian visitors from Mainland China, Taiwan and Canada.
While the project had theoretical appeal to a large swath of the Asian population, the Lucky Dragon also had $45mm in debt; it has to repay its construction loan ($30mm) and revolving loan ($15mm) to its secured creditor, Snow Covered Capital LLC (no, we didn’t make that name up). The hotel/casino also received $89,500,000 from Lucky Dragon LP, an investment vehicle housing the 179 individual EB-5 investments in the property. Snow Covered recorded a Notice of Default on the property to commence foreclosure back in September. Unable to find a buyer at a purchase price sufficient to pay off Snow Covered’s claims outside of court, the hotel/casino filed for bankruptcy to pursue “a quick auction, which will pay Snow Covered in full, provide fresh capital, and reenergize the project, such that it can become profitable and expand into full operation as quickly as possible.” The hotel/casino hopes that such an auction will give EB-5 investors “an opportunity to preserve their investments.” Yeeeeaaah.
The debtor is already facing opposition. Snow Covered is objecting to the use of its cash collateral - taking shots at the debtor’s valuation in the process - and claiming the filing was made in bad faith. A hearing on all of this action is today, February 21.
We’d be remiss if we didn’t point out the active role that EB-5 investors play in the distressed sale of the SLS Las Vegas as well. In that case, EB-5 investors ponied up $400mm and have filed suit against the prospective buyer of the (distressed) property, Alex Meruelo. “The SLS continues to lose money, according to the November lawsuit filed on behalf of the Chinese debt holders.” The sale faces some hurdles; maybe SLS will (finally) end up in bankruptcy court after all…?
All of which is all to say that there may be an opportunity for some industrious lawyers seeking an untapped niche as the distressed EB-5 experts.