In what may be a first in Las Vegas, the financially struggling Las Vegas Hilton will be run, at least for now, as a split operation.
Clark County District Court Judge Elizabeth Gonzalez on Wednesday allowed the majority owner, an entity controlled by Santa Monica, Calif.-based Colony Capital Corp., to remain in charge of the casino because it holds the gaming license.
All other aspects of the 2,950-room hotel, including the rooms, food and beverage and meeting sales, will fall under the authority of Ronald P. Johnson, who was nominated as the receiver by the hotel’s two main lenders.
Johnson, whose résumé on the Strip dates back to the 1980s, could not recall any other time this has happened.
“This is unique,” added A.J. “Bud” Hicks, a veteran gaming attorney on the lenders’ legal team.
Gonzalez chose this route after Colony agreed to imposition of a receiver following a midyear $252 million mortgage default. However, Colony fought a proposal by the lenders, entities controlled by Goldman Sachs Group Inc. and Gramercy Capital Corp., to give all authority to a receiver out of the fear that it could be stuck with the financial consequences of decisions it could not control.
The arrangement could be short-lived, however. Johnson’s gaming license application is to be heard by the Nevada Gaming Commission on Dec. 22, after which Gonzalez could give him full authority.
In testimony on Tuesday, Colony chairman and CEO Thomas Barrack, discounted the idea of segregating the gaming from other parts of the hotel.
“Everything else is really subsidiary to the casino operation,” he said, later adding that, “We have to behave like grown adults and find a way to make this work.”
He also said he would not put the property into Chapter 11 bankruptcy proceedings as a last-ditch effort to hang on.
“Our thrust all along has been to ensure and orderly transition for everyone involved,” he said.
Johnson, an independent consultant hired by the lenders a year ago as their observer and adviser as finances deteriorated, indicated he has already mapped out changes to come.
“I believe the Las Vegas Hilton has to start creating and delivering value to its customers,” he said.
He declined to spell out any specifics.
Because officials with Hilton Hotels Corp. have already said the company would revoke its franchise, the property’s name will change to LVH-Las Vegas Hotel & Casino on Jan. 3. While managers will continue to promote its proximity to the Las Vegas Convention Center, Johnson said the move imperils the one-third of room bookings made though Hilton’s reservation system.
Colony bought the Hilton, which opened in 1969 as the International Hotel, for $280 million in 2004. Goldman Sachs joined the deal as both 40 percent owner and principal lender.
The hotel prospered for a few years, but the Hilton staggered when recession hit; in the 2½ years through last June 30, the cumulative net loss ran $75.2 million. Attempts to restructure the loans merely delayed a default. Barrack declined to put more money into the hotel in response to a $20 million capital call earlier this year, but he said he did so after seeing Goldman Sachs also refuse fresh investment.
Barrack said he has already written off $190 million that has been pumped into the property.
When the receivership case began, Colony had staked its defense on contentions that Goldman Sachs was improperly squeezing it in favor of the Stratosphere, another resort it owns. By the time the hearing began on Tuesday, Colony had dropped any accusations of impropriety.
Besides the receivership, the Hilton is scheduled to change hands through foreclosure on Jan.12.
Contact reporter Tim O’Reiley at
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