A dispute over control of the Las Vegas Hilton’s casino is moving to the Nevada Gaming Commission after a court ruling Wednesday.
Lenders led by investment bank Goldman Sachs — also a minority investor in the 2,950-room Hilton — are foreclosing on the property and, in the meantime, have filed a lawsuit asking that a receiver accountable to the court be appointed to run the Hilton.
After a two-day hearing, Clark County District Court Judge Elizabeth Gonzalez on Wednesday approved the appointment of longtime gaming executive Ronald Johnson as receiver — but only for the Hilton’s nongaming operations.
That was after the Hilton’s current majority owner, billionaire Thomas Barrack of Los Angeles investment company Colony Capital LLC, fought efforts by Goldman Sachs to allow Johnson to run the casino using the Hilton’s current gaming licenses.
Barrack testified during a hearing Tuesday that such a situation would be “untenable” as it would leave Barrack liable for Johnson’s conduct, even as Barrack would have no input on — or control of — Johnson’s acts and decisions.
Attorneys for Barrack and the Hilton’s parent company he controls, Colony Resorts LVH Acquisitions LLC, also argued that in a foreclosure, a lender can’t acquire a borrower’s gaming license as under Nevada law, such licenses cannot be transferred.
Attorneys for Goldman Sachs and its loan servicer, Gramercy Loan Services LLC, argued Johnson’s operation of the casino under the Hilton’s current gaming licenses is something allowed under Nevada gaming law and is not an attempt to “hijack” those gaming licenses.
“It is an authorized use of the license provided by law to protect the rights of creditors,” attorney Bud Hicks of the Nevada law firm McDonald Carano Wilson LLP told Gonzalez.
Gonzalez, however, said the law is unclear on this issue.
She agreed Johnson could run the nongaming operations and said that if Goldman Sachs gains approval from the Nevada Gaming Commission for Johnson to run the casino during a hearing set for Dec. 22, she may reconsider the casino receivership request.
But for now, she said, “I’m going to leave it to gaming (authorities).”
Goldman Sachs attorneys also argued Colony Resorts LVH had failed to come up with any evidence to back up its claim some of the Hilton’s Goldman-appointed officers may have been plotting to steer business from the Hilton to the nearby Goldman Sachs-owned Stratosphere hotel-casino.
Las Vegas attorney Erika Pike Turner of the law firm Gordon Silver, representing Colony Resorts LVH and Barrack, was pleased with Gonzalez’s ruling Wednesday.
“It’s a win,” she said, adding Colony Resorts LVH will oppose any effort by Goldman Sachs to convince the Gaming Commission to allow Johnson to run the casino based on the Hilton’s current licenses.
Colony Resorts LVH has said Goldman Sachs could foreclose and run the casino itself under its own license, if it chooses to gain a license, or hire a licensed operator to run the casino. For instance, Deutsche Bank, owner of the Cosmopolitan of Las Vegas through a foreclosure, gained a license to run that property. As another example, lenders that took over the Hard Rock hotel-casino hired a gaming operator for its casino.
But Barrack is adamant about not allowing the receiver to run the Hilton casino under the Hilton’s licenses and he and other top Hilton executives have threatened to surrender their gaming licenses if it came to that.
Turner reiterated concerns spelled out by Barrack in his testimony that Johnson may lay off employees and cancel vendor contracts — actions Barrack said contradict his fiduciary duties to the various Hilton constituencies.
Barrack, testifying Tuesday, seemed accepting of the foreclosure now under way as both he and his partner in the Hilton — the investment side of Goldman Sachs — have decided to stop pumping capital into the money-losing property.
That led to the Aug. 9 disclosure the Hilton had defaulted on its $252 million term loan.
“We’ve come to the conclusion our equity is gone,” Barrack testified, adding the Goldman Sachs lending arm had refused to negotiate a consensual recapitalization of the company or a restructuring of the debt.
The Las Vegas Hilton separately is changing its name to LVH — Las Vegas Hotel & Casino.