Casino bankruptcies nothing new for Gordon Silver official

For more than three decades, Las Vegas casino owners have gone to Gerald Gordon for advice on how to avoid bankruptcy and how to emerge from it as viable businesses.

He successfully led the Landmark, which billionaire Howard Hughes once owned, out of bankruptcy only to see it be imploded after it failed again. He was lead counsel for the Silverbird in the late 1970s.

Gordon represented Carlson Newton, a Wayne Newton company, in another bankruptcy reorganization case. He helped arrange the bankruptcy court sale of the Stratosphere to financier Carl Icahn, who later sold the property. He helped shepherd the Aladdin through bankruptcy two times, most recently facilitating the sale to Planet Hollywood. He helped Gordon Silver represent Fitzgerald's Gaming, which operated four casinos, including the one in downtown Las Vegas.

The firm represented Security Pacific Bank, the primary secured creditor in Main Street Station, which was closed and sold to Boyd Gaming Corp. Gordon now serves as lead bankruptcy attorney for Herbst Gaming.

Gordon can see the Strip from his ninth-floor office on Howard Hughes Parkway. He also has a vision of what the Strip will look like in a few years after the coming round of bankruptcy filings.

Question: Why should the bankruptcy law allow businesses to walk away from their debts?

Answer: It doesn't. The purpose of bankruptcy is to recognize reality.

If a business has $1 million in debt, but the business is truly only worth $500,000 and can only service $300,000 in debt, why maintain the fiction?

The purpose of bankruptcy is to provide a forum to restructure that company so that it can survive and thus maintain a future, keep people employed, buy goods and pay for services.

There is an underlying principle in reorganization in that creditors must be paid in full before equity (stockholders) retains any ownership. That's why you see a lot of properties sold, because debt is never going to be paid in full. So you maximize value to creditors. If we didn't have this process, it would be chaotic and it would not be an efficient market.

Question: Most businesses file for Chapter 11, which allows the company to reorganize its debts and emerge as an ongoing business, rather than Chapter 7, which calls for liquidation.

However, is it true that most Chapter 11 bankruptcies end up with the owners or stockholders getting wiped out?

Answer: Yes, but that's expected. Businesses that go into Chapter 11 are insolvent. That means they're not able to pay their debts. It's rare, but there are cases where owners are able to stretch out debt, maybe come up with a lower interest rate.

There are companies where the owners have an expertise and, therefore, have an ability to survive. In gaming, owners are licensed. Creditors are not. Therefore, there is some impetus to keep previous ownership involved.

Question: What do you consider a good outcome in a Chapter 11?

Answer: Generally, when you're looking at hotel or a gaming case, I look for the outcome being a restructured company, which is competitive with a viable debt structure, a stable employment situation and generally capable of competing in the market.

We were lead counsel for the Riviera. It was reorganized and was put under the management of Bill Westerman, who, of course, is still chairman of the board.

When we approach a large case, we approach it from a group standpoint. What we generally do is put together a group of partners and associates with expertise in various areas. You have corporate issues. You have employment issues. You have tax issues. You have real estate issues. For instance, the Aladdin was a sale to Planet Hollywood.

Question: Why do casinos typically file for bankruptcy?

Answer: It's a highly competitive industry. It is capital-intensive. You have a demand for extensive capital expenditures to maintain them.

As long as you have the same products, the same slot machines, the same table games, (gamblers) don't care (where they play). The rules are generally the same. It's an extraordinarily competitive industry.

If you start trying to ratchet up your (casino gambling) holds, your players understand that. Those that have a very efficient facility with the least debt service costs are the most successful.

Question: Do you think Las Vegas will get new casino owners, or do you expect existing owners to remain in control?

Answer: For the last 10 years, we've seen consolidation in the industry. I think for the next five years we're going to see deconsolidation in the industry. Properties are going to be sold off.

We're going to see different companies come into the industry. We're going to see opportunities at prices that were not imaginable recently. We're not going to see a lot of new properties, because there won't be demand, plus the cost of building is expensive.

Question: Will some casinos be shut down?

Answer: Nothing will shut down. Properties generally don't shut down, because they are still capable of producing an operating profit and cash flow over and above general expenses. What they can't do is pay the debt at levels where they now exist.

For instance, at the Stratosphere, we went into bankruptcy with $750 million in debt. The property came out of bankruptcy with about $125 million in debt. It couldn't service $750 million. It could service $125 (million) and still have enough cash flow to do those things necessary to remaining a viable, vibrant property.

Question: What do you see happening with real estate company bankruptcies?

Answer: The properties are generally not producing any revenue and the values are dramatically down, generally below debt levels.

There's very little that can be done, given that land prices are not going to come back for a long time, and most of these properties are well overencumbered.

Question: How will Southern Nevada emerge from the recession?

Answer: I see it being a long-term problem. It won't start coming out until we start to see some stabilization on our hotel-casino side. That will be the final chapter.

I don't think we're going to see construction of new hotel-casinos for a long period of time. Therefore, I think the construction industry here is going to be in a recession period for a long period of time.

When your major industry, which in this case is gaming, is in this deep a recession, it's going to take a long time for it to come back.

I'll tell you what all the financial experts are saying, and I think they are right. We'll start to see a real recovery here in the second half of 2010, probably the fourth quarter.

Question: Gordon Silver recently brought in criminal defense attorney Dominic Gentile and his associates. Does criminal law sometimes come into play in bankruptcy cases?

Answer: Of course. (Gentile and his associates) are excellent litigators. Our goal is to expand the firm, and that was the first step. We're looking to take that practice throughout the Western United States.

I've never been busier in bankruptcy right now. However, we perceive it as an opportunity to expand our other practices and to expand our footprint.

We have been very conservative in the ways that we have grown, but we are a very vibrant law firm now, unlike other law firms that are terminating employees, laying off people. We are judiciously adding people. We have 16 partners, 15 associates and 20 non-attorneys.

Our goal is to have 50 attorneys with three or four offices in multiple states.

The strategy is to use our strength to ensure our future.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.