Treading Water In A Sea Of Debt

Posted: October 15, 1989

They told him it would never work. But J. Leon Altemose was not to be dissuaded.

He had a grand plan to open a convention center next to his Sheraton Valley Forge Hotel in King of Prussia and attract business from across the country. The idea of a privately owned convention center seemed impractical to some - including lenders who refused to back the project - but Altemose defied the skeptics and pulled it off.

With complicated financing that took nearly five years to arrange, the Valley Forge Convention and Exhibit Center opened in 1985. Before long, it was drawing national exhibits and trade shows, and Altemose boasted of its success.

"I knew I could make it work," he told a reporter that year. "I'm a great believer in capitalism, and I finally convinced lenders to back us. I want to prove that these things, in the hands of the private entrepreneur, can make money."

So far, that hasn't happened. And there are signs that Altemose's King of Prussia empire - which includes the convention center, the Sheraton, the Radisson Hotel Valley Forge and an adjacent office building - is in serious

financial trouble.

Valley Forge Plaza Associates, the limited partnership that owns the properties, in March sought protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. The action allowed the businesses to stay open while company officials try to restructure their heavy debt.

Altemose is a partner in the company, which he runs with his cousin, Roger Altemose, and Malvern resident Louis Paul. Leon Altemose also is a co-owner of Pulsations nightclub in Glen Mills, Country House restaurant in Kimberton and several industrial parks and business plazas in the western suburbs.

In documents filed in U.S. Bankruptcy Court in Philadelphia, Valley Forge Plaza Associates listed $146.2 million in assets and $98.7 million in debts. The biggest liabilities are mortgages that total $76.3 million, not counting interest that has accrued since March. The company also owes $493,818 in federal, state, county and local taxes - $277,000 of which is secured by tax

liens filed last year.

Hundreds of creditors who do not hold collateral are owed the balance of the money. Those debts range from a defaulted $3.1 million bank loan to overdue bills from florists and hotel vendors.

Altemose said the financial trouble began last year, when the convention center suffered a spate of canceled exhibits and trade shows. That meant business losses for the two hotels, which draw much of their clientele from conventions.

"The last two months of the year just went to hell in a hand basket," said Altemose, 50.

Unable to keep up with debt payments, he and his partners unsuccessfully sought to refinance, then turned to the courts for protection. Altemose said he viewed the bankruptcy as a way to buy some time, avoid foreclosure and work to persuade creditors to compromise on payments.

Restructuring the debt has proved an elusive goal.

In seven months of legal wrangling, angry creditors have blamed Valley Forge Plaza Associates for borrowing too much money and have hinted that they want the properties sold to satisfy the debts.

"We're dealing in an environment of distrust and hostility," Louis Paul, the company's treasurer, testified at a hearing in July. " . . . Most of these folks out here are not interested in reorganizing. They're interested in selling it and getting paid off and going home."

For his part, Paul said he believed it was possible to continue running the businesses while paying off the debt under revised terms.

Some of the creditors' lawyers seemed skeptical about that.

Richard F. Casher, lawyer for Connecticut General Life Insurance Co., which holds a $40.4 million mortgage on the Sheraton and the nearby office building, said Valley Forge Plaza Associates had put itself in a "precarious posture" through its heavy borrowing. In court papers, he said the company faced "a continuously escalating level of debt that (it) has no foreseeable hope of being able to service."

"The convention center," Casher said, "is . . . under water."

Altemose insists that is not so. But the company's financial reports to the court paint a dismal picture.

The reports project that from July 1 to Oct. 29, the convention complex will generate $817,000 after salaries, utilities and other expenses have been paid. During that period, court records show, mortgage interest will total $2.3 million.

That means a $1.48 million shortfall in four months' time.

Through a complex arrangement involving several lenders, Valley Forge Plaza Associates owns the complex's buildings - each of which is encumbered by three mortgages - and leases the underlying land from a Georgia-based life insurance company.

Since the bankruptcy, Valley Forge Plaza Associates has made payments to only one lender, Dai-Ichi Kangyo Bank Ltd., which backed $16 million in tax- free bonds to finance construction of the convention center. The 30-year bonds, issued by Montgomery County Industrial Development Authority, enabled the company to borrow money at a below-market rate that averages 7 percent annually. Should the company fail to make payments on the bonds, the interest rate would climb to 16 percent, substantially increasing the project's cost and its debt payments.

For that reason, Bankruptcy Judge David Scholl has allowed Valley Forge Plaza Associates to make payments to Dai-Ichi Kangyo while it drafts a plan for paying its other debts.

Since the company stopped making payments in March, its mortgage interest has increased $771,754 per month, according to court documents. At that rate, the combined mortgages will exceed $83.2 million by year's end.

Despite the mounting debt, Altemose says he is confident that he can reach an accord with creditors and turn the businesses around.

"It's just taking longer that I thought it would" to make the convention center profitable, said Altemose, of Charlestown. "When we first wanted to do this, we didn't get any favorable local support. . . . I should have figured

from that reaction that it would be hard to sell (elsewhere).

"I'll tell you who isn't happy," he continued, "my investors and my lenders, because they're not making money. When it starts making money in about two years, they'll say I was a soothsayer. They'll say I was right."

Since the bankruptcy filing, Altemose, who is accustomed to dividing his time among a host of affiliated businesses that include construction, engineering, architectural and interior design firms, has worked full-time at the center.

"I've got to get it back making money as a whole - profitable, the whole complex - which it is not now," he said between forkfuls of pasta at Bocconcini, an elaborately furnished Italian restaurant at the Radisson.

At noon on an August day, the dimly lit restaurant was empty, except for three men in business suits who lunched at a nearby table. Not to worry, Altemose said. Business typically is slow from late summer through the end of the year.

To help make ends meet during the lean times, he and his partners have accepted pay cuts. Through an agreement with creditors, Altemose's $1,500 weekly salary from Valley Forge Plaza Associates was cut to $538.46; Roger Altemose's $1,500 salary was cut to $57.69; and Louis Paul, whose responsibility as treasurer gives him a key role in the bankruptcy case, had his $1,500 salary cut to $903.85 a week, according to court records. The three also receive salaries from LRL - as in Leon, Roger and Louis - Hospitality Group and several affiliated corporations that do business with the center.

Working long hours, often for six days a week, Altemose is trying to put the ailing center on the path to profitability.

There have been hours on the phone, reassuring show sponsors concerned about the bankruptcy, and delicate negotiations to attract new exhibits to a center plagued by financial problems.

Through it all, the show has gone on.

In the last month, the convention center has played host to candymakers, computer sales representatives, philatelists and financiers. Busloads of tourists regularly converge on the glitzy Lily Langtry's Dinner Theater and Restaurant; businessmen still book suites at the Radisson, and amorous couples still frequent the Sheraton's elaborately decorated theme suites.

Through it all, Altemose has remained publicly optimistic - ever the cheerleader.

"Things are going very well," he told reporters last month after appearing at an Upper Merion Township meeting to lobby against a proposed tax on trade-show merchants. "We're reaching an accord with our creditors. It's going very well."

Privately, he has been somewhat less assured.

"His words: He's up to his butt in alligators," said Tom Roche, president of Roche Trade Shows Inc., which sponsored the boat show that was the convention center's first exhibition in 1985. "He's a little worried, but he'll come out of it."

Roche, who has a contract to hold shows at the center through 1998, said some exhibitors had canceled their shows. But he, for one, is not worried. ''He'll pull out of it," Roche said. "Chapter 11 is just Leon trying to buy some time."

The money problems at the convention complex are not Altemose's first brush with financial trouble. In February, he turned over his Brandywine Hotel and Resort in Downingtown to Fidelity Bank as part of an agreement to repay a loan.

In June, another unpaid loan prompted Northeastern Bank of Pennsylvania to file a $3.3 million judgment against Altemose and his partners, who signed personal guarantees that the $3.1 million loan would be repaid with interest. The loan is among the unsecured debts in the convention center bankruptcy. Altemose is contesting the judgment in Chester County Court.

A $1.2 million judgment filed in Montgomery County Court by Bell Savings Bank in June seeks repayment of a loan to Lease Tech Financial Services that was guaranteed by Altemose and his partners in Valley Forge Plaza Associates.

On the advice of his lawyers, Altemose declined to discuss the judgments or the center's finances, except in general terms. Even then, he made it clear that the bankruptcy was not his favorite subject.

He would rather discuss his touted struggle with the trade unions when he was building the Sheraton with nonunion labor in 1972. His battle with the unions included rioting at the site and a firebombing that attracted national attention and landed Altemose a segment on 60 Minutes.

As he talked about resisting the unionists whom he refers to as "thugs," Altemose spoke of himself as one man against an army. He casts his current

financial struggle in the same light.

"When I go in there against the banks," he said, "I'm the little guy, and I think that will help with the judge."

Far from brooding over the convention center's plight, Altemose is working on ambitious plans for its future. Specifically, he wants to double the size of the convention center. He estimated the expansion cost at $20 million - a sum that he proposes to raise through a voluntary 2 percent room tax at hotels near the convention center.

Altemose acknowledged that he has not worked out the details or enlisted the cooperation of area hotel owners, but with characteristic pluck, he has plunged ahead with the planning.

"A little bit of help from the community is needed by everybody at times," he said. "I have been politicking, trying to get people to support it. I think it will work."

Such determination is in keeping with the slogan on a yellow button pinned to the lapel of Altemose's dark suit. It read: "Yes, we can."

"It means if you ask us to do something, we'll try to do it," Altemose explained. "We will do it if it's humanly possible."

That is how he views this latest challenge - the struggle to keep his pet project in business. Working out agreements with creditors and devising a reorganization plan could take several months, according to lawyers familiar with the case.

"There is a desire to resolve this case consensually," said James M. Peck, lawyer for Dai-Ichi Kangyo Bank. "Whether that can be done remains to be seen."

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