Bankruptcy court approves plan for Las Vegas Hooters casino

Bankruptcy court approves plan for Las Vegas Hooters casino
By Tim O'Reiley
LAS VEGAS REVIEW-JOURNAL

The owners of the Hooters Hotel in Las Vegas received U.S. Bankruptcy Court permission to spend the money it needs to stay in operation during a Thursday hearing that hinted at some of the potential disputes ahead.

By the time U.S. Bankruptcy Judge Bruce Markell took the bench, attorneys for 155 East Tropicana LLC, the parent company, and the main lender had agreed to terms on keeping the off-Strip casino open for at least 13 more weeks, a standard feature of many corporate bankruptcies. Because the cash generated by a business is generally part of a lender's collateral, a business loses control on spending.

While saying nothing at the hearing, attorneys for Beverly Hills-based Canyon Capital Realty Advisors, by far the largest creditor through an affiliate, filed court papers taking a dig at what it sees as soaring pay in the front office. Quoting a written statement by Hooters chief financial officer Deborah Pierce, Canyon noted, "(H)otel and casino revenues have steadily decreased since 2007, (yet) the salaries of executive-level employees have dramatically increased during the same time frame."

Net revenues for the 696-room hotel dropped 34 percent over the three years to $43.7 million in 2010. Nonexecutive pay dropped 26 percent, and layoffs cut staff by 37 percent. Executive compensation rose by 8 percent, court documents say.

Hooters president Michael Hessling declined to comment except to say, "I have not received a pay raise since 2004."

That was when the current owners purchased the former San Remo and remodeled it as Hooters.

In addition, Canyon contended that Hooters had siphoned $9 million from the operation to unknown bank accounts. However, Hooters attorney Gerald Gordon pointed out that elsewhere in its papers, Canyon reported that Hooters had to file numerous financial reports regularly, including an 83-page annual budget.

The hotel, owned by two Hooters restaurant licensees, the Eastern & Western Hotel Corp., the San Remo's former owner, and Hessling, began the property's overhaul in March 2005 and debuted as Hooters the following February. During the four years through 2009 when it stopped reporting results to the Securities and Exchange Commission, it racked up $64 million in losses that worsened as the recession set in.

"It's a tough, tough economy," Hessling said. "People just aren't spending."

It retained the Gordon Silver law firm, a specialist in bankruptcy and financial distress, three years ago as it became apparent that revenues could never cover loans used for the makeover. The total loans, not including people and companies that deal with Hooters regularly, now approaches $177 million.

Canyon was in the deal from the beginning, supplying $15 million in credit. Last October, it substantially upped the ante by buying corporate bonds with a face value of $127.5 million for just $28 million, giving it 99 percent of the secured debt.

Both sides attempted to negotiate a settlement, where a bankruptcy would have been filed along pre-arranged terms. When talks broke down and Canyon pushed for a foreclosure scheduled for next Monday, Hooters filed Chapter 11 on Aug. 1 to stop the action.

Canyon has invested in numerous distressed or even bankrupt properties through the years and is no stranger to Las Vegas. In 2006, it announced it would finance the renovation of the Lady Luck hotel downtown, but nothing ever happened. Last June, it committed itself to spend $500 million in conjunction with former tennis star Andre Agassi to build 75 charter schools across the country.