Creditor critical of Hooters casino executive salaries

Sun file photo

The Hooters resort-casino on the Las Vegas Strip.

The Las Vegas Hooters casino bankruptcy is shaping up to be contentious, with the property’s main creditor already suggesting executives there are overpaid.

Hooters, unable to service its $162 million-plus in debt, filed for Chapter 11 bankruptcy protection Monday to block a foreclosure by debt holder Canpartners Realty Holding Company IV.

Canpartners is an affiliate of Canyon Capital Realty Advisors of Los Angeles, a $20 billion investment house.

Attorneys for Canpartners made their first public comments on the Hooters bankruptcy Wednesday – and they weren’t favorable about Hooters management.

Canpartners noted in a court filing that Deborah Pierce, the chief financial officer of Hooters casino’s parent company, 155 East Tropicana LLC, in early July had an annual base salary of $191,406 – not counting potential bonuses.

"Sometime last month, on the eve of bankruptcy, Ms. Pierce’s base salary was increased by 61 percent (to $307,406)," Canpartners said in the brief.

Canpartners noted that Gary Gregg, chief operating officer of the casino company, receives a base salary of $300,000; Michael Hessling, president, receives a base salary of $275,000; and Neil Kiefer, CEO, receives a $100,000 annual salary.

Canpartners charged that while "hotel and casino revenues have steadily decreased since 2007, the salaries of executive level employees have dramatically increased during this same timeframe."

"Based on the company’s financial statements previously provided to Canpartners by Ms. Pierce, net revenue declined by 34 percent from $66.5 million to $43.7 million from 2007 to 2010, respectively," Canpartners’ filing said. "During that same time period of revenue decline, executive salaries increased 8 percent whereas salaries for all departments excluding executives declined by 26 percent and full-time employees were reduced by 37 percent from 966 FTEs to 605 FTEs."

"While Canpartners consents to the payment of senior management’s existing salaries (even those recently modified shortly before the bankruptcy) on an interim basis, Canpartners reserves all of its rights to object to the executive level and board member compensation at a further hearing," said the filing by Canpartners attorneys with the Los Angeles law firm Loeb & Loeb LLP and the Las Vegas firm Shea & Carlyon Ltd.

Wednesday’s court filing was likely just the first salvo in a battle over how Canpartners can protect its collateral in the hotel-casino, including the property’s cash in various accounts.

Hooters has said Canpartners acquired 98 percent of its bond debt at a substantial discount, but it’s unknown how much Canpartners actually paid for it. Hooters has said it tried to negotiate a solution to avoid the bankruptcy, but was unable to reach an agreement with Canpartners.

Canpartners said in its filing it’s the casino’s sole lender under a $14.5 million first lien credit facility and that the casino’s senior secured note (bond) obligations total $165 million.

"The obligations are secured by first and second priority security interests in and liens on substantially all of debtors’ assets," Canpartners said in its filing.

That would indicate the property is substantially upside down on its debt, as the casino’s initial bankruptcy filing estimated assets totaled no more than $50 million.

The Clark County Assessor lists the taxable value of the property at just over $22 million. Its actual market value will likely be determined through the bankruptcy process.

Attorneys for U.S. Bank, trustee for the bondholders, on Thursday joined Canpartners in expressing concern about the Hooters casino salaries.

"Certain facts regarding the payment of salaries bare further investigation," said a filing by U.S. Bank, which is represented by attorneys in multiple offices of the law firms Ballard Spahr LLP and the firm Dorsey & Whitney LLP of Minneapolis.

U.S. Bankruptcy Judge Bruce Markell in Las Vegas on Thursday approved the Hooters casino’s routine "first day" bankruptcy motions on issues like its requests to continue paying employees and vendors as usual. He also gave the casino interim approval to continue using creditors' cash collateral totaling nearly $9 million.

But he acknowledged the creditors’ concerns about the salaries and ordered 155 East Tropicana to file – under seal – with the court a list of the top 10 paid executives and their salaries. That way, the information will be available to him should creditors press this issue during the bankruptcy case.

"There are allegations there may have been some fraudulent transfers or sweetheart deals," Markell said, adding he knows 155 East Tropicana would deny that and he has not yet formed an opinion as to whether these allegations have merit.

Given the property being so deeply underwater in its debt, Markell also suggested Canpartners has legitimate concerns about how 155 East Tropicana preserves and spends Canpartners’ cash collateral at the hotel-casino.

"You’re giving me a 13-week budget showing a cash leakage (loss) of about $392,000," Markell told 155 East Tropicana’s attorneys. "Either you give up the keys pretty quickly, or you get a consensual (reorganization) plan or you’ve got some new value (investment)."

"It’s an undersecured case. If I were them (Canpartners) I wouldn’t let you spend a lot of that money ($9 million in cash collateral) trying to put in place a new value or other type of plan because it’s all their’s ultimately," Markell said.

As the bankruptcy case progresses, Canpartners will have the option to press for a foreclosure of the 696-room property on Tropicana Avenue just east of the Las Vegas Strip. There are other options for Canpartners to convert its debt into equity, which is how the current owners of Herbst Gaming – now Affinity Gaming LLC – gained control of that company through its bankruptcy.

Or, Canpartners may press for an auction of the hotel-casino so it can be cashed out.

Hooters casino’s owners, on the other hand, are likely to offer a reorganization plan in which they maintain control of the property. As was seen in the Station Casinos bankruptcy case, that may require an infusion of capital by the current owners.

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  1. I actually like Hooters a lot, but this property has serious issues. They initially marketed themselves as a niche competitor to hip casinos like the Hard Rock and Palms. The problem was, even though they did a nice job in renovations, they inherited a dump, and there is still a lot of dumpiness that rears it's ugly head in spite of the fix-up.

    Once they realized they weren't going to get the two hundred plus room rates better properties can glean, they dropped their hefty fees and sought the middle market. The problem is, the middle market that wishes to stay at Hooters is younger tourists who don't have a lot of money. Hooters is never going to get the sixty year old couple that is going to put excessive money into the slot machines. Slot handle is how casinos make their money, and the type of people who will stay at Hooters are younger people, familiar with the brand, who are in Vegas to party, not sit in front of a Lucky Seven for five hours.

    That leads to the next problem. Hooters lacks in the amenities. They don't have the nightclubs, dayclubs, or the panache that make tourists want to stay on property. Tourists might book a room, but they will likely spend their money elsewhere.

    I think there are possibilities for this property, but it will never work the way it currently is set up.

  2. Hooters management has gone with this "everyone wants to see Hooters Girls" the home town cuties. In the process they have missed the boat, they have burned through the one of the greatest bar and service staffs in the city. When they opened in 2006 they had guys pouring the drinks and the girls being the friendly smile hostesses that made you feel welcome. This also was a great way to keep local gamblers at the bar. That change by 2009 and now the guys were gone and the girls were overwhelmed.

    The cuts in salaries and the raises were made at the wrong end of the ladder. I have seen this management team treat this place as their playground at hot their customers.

    Use to be a VIP here, now I stop by to say hi to the staff, those that are left.

  3. Way too often, as a business is sinking in red ink, the clueless exectuives take huge raises and bonuses while cutting benefits and staff in the wage earner's department, therefore a noticeable drop in customer service. The folks who supply the goods to keep the company running end up not getting paid, or getting pennies on the dollar.
    It used to be raises and bonuses were tied to overall performance, If the company makes money, executives (and sometimes employees) got rewarded. Now it's "take all you can get before the party ends".
    We need to get back to reality. Too many businesses are failing because the top level people are taking and taking.
    I'm all for executives making large amounts of money IF THE COMPANY IS PROFITING.
    After bankruptcy, the people who ran it into the ground too often are the only ones who get anything, while stockholders, employees and creditors get very little. (see: Enron, K-mart, Stations, large banking companies, etc.).
    While I'm nor a "night club person" I think Hooters would be a natural fit for one of those clubs you see at the nicer strip casinos. It would generate more traffic.