A judge on Thursday gave the 2,950-room Las Vegas Hilton hotel-casino more time to fight efforts by its lender to foreclose on the property and install a receiver to displace the current management.
The Hilton has struggled financially in recent years from the double whammy of the recession and more competition in town in the form of new hotel rooms. Thanks to projects like CityCenter and the Cosmopolitan, the Las Vegas room count has increased from 133,347 in August 2006 to 149,930 today.
The Hilton’s owner, Colony Resorts LVH Acquisitions LLC, disclosed Aug. 10 it had defaulted on its $252 million term loan after skipping three payments over the summer totaling $3.5 million to conserve cash for operating expenses.
Lender Goldman Sachs Mortgage Co. then initiated foreclosure proceedings and sued the Hilton in Clark County District Court on Sept. 13 in a bid to have the court install a Goldman Sachs-selected receiver to run the property until it’s sold.
The Hilton responded with charges that investment bank Goldman Sachs was conflicted in the foreclosure as its lending arm was acting against a property in which Goldman Sachs also holds a 40 percent equity stake.
The Hilton also charged the foreclosure is tainted by Goldman Sachs’ ownership of competing gaming company American Casino & Entertainment Properties LLC, owner of the Stratosphere hotel-casino near the Hilton.
During a hearing Thursday on the Goldman Sachs’ receivership lawsuit, an attorney representing Goldman Sachs, James Hough, said the Hilton hadn’t provided the court any information to back up its claims that Goldman Sachs has been maneuvering against the Hilton as part of a plan to benefit the Stratosphere.
“It seems like a fishing expedition,” Hough said of efforts by the Hilton to conduct fact-finding discovery prior to the court ruling on its receivership request.
Hough is with the New York law firm Morrison & Foerster LLP.
Clark County District Court Judge Elizabeth Gonzalez could have ruled on the receivership request Thursday, but she didn’t.
Gonzalez said it’s her policy in such receivership cases that an evidentiary hearing be held so all the facts can be aired in court before she makes a decision.
She gave Hilton attorneys the opportunity to take depositions of four Goldman Sachs officials over the next few weeks, prior to the eight-hour evidentiary hearing that has yet to be scheduled.
The depositions will give Hilton attorneys an opportunity to flesh out details of what they see as an obviously conflicted situation.
“It’s a four-way conflict we’re dealing with,” said Hilton attorney Erika Pike Turner, of the Las Vegas law firm Gordon Silver, pointing to the Goldman Sachs investment arm, its lending arm, the Hilton and the Stratosphere.
In a court filing, Turner said it would be extraordinary for a receiver to take over a large Las Vegas hotel-casino with an unrestricted gaming license. In this case, the property employs some 2,350 people.
There have been several changes of control in casino bankruptcies, but the last time a receiver took over outside of a bankruptcy was at the Maxim (now Westin Casuarina) in 1997. In that case, Turner said, the existing licensee was forced out because of evidence of misfeasance and contempt of court orders.
“There is no similar exigency in this case, as there is no evidence of any collateral waste or other malfeasance in the management of the Las Vegas Hilton,” her court filing said. “This is not a run-of-the-mill commercial property. The Las Vegas Hilton owns and operates a mega-resort that includes the largest Hilton hotel in the world, and one of the largest casinos in Las Vegas, located directly adjacent to the Las Vegas Convention Center.”
The Hilton is majority owned by an affiliate of billionaire Thomas Barrack’s Los Angeles company Colony Capital LLC.
Goldman Sachs’ legal team has suggested Barrack may have his own conflicts, as Barrack’s company helped take Station Casinos Inc. of Las Vegas private in 2007.
Also Thursday, Gonzalez granted a motion by another Barrack company, Colony Investors VI LP, that it be allowed to intervene in the Hilton case.
Colony Investors VI LP is concerned that a receivership of the property could cause Goldman Sachs to “erroneously claim” Colony Investors VI is obligated to pay more than $250 million as a loan guarantor.