Maxim to close doors in December

Gary Thompson

Friday, Oct. 8, 1999 | 11:33 a.m.

The 800-room Maxim hotel-casino plans to close Dec. 6, throwing 791 employees out of work just in time for the holidays.

And that infuriates Ed Nigro, the well-respected 57-year-old casino executive who's been running the financially ailing 800-room hotel-casino for nearly two years with the approval of state gaming regulators and for two different owners.

Nigro is fuming about the puzzling behavior of the current owner, Dallas-based Premier Interval Resorts Inc., a limited liability company formed to buy the Maxim out of bankruptcy earlier this year.

Since August, Premier has refused to provide the Maxim with $300,000 needed for operating funds and won't explain why, Nigro said. He suspects Premier wants to default on its financing agreement with a private trust that lent it money to buy the Maxim.

The trust, Meralex Limited Partnership of Georgia, has a general partner called Jenkins Baldwin Corp., which occupies the same Dallas office complex as Premier and the International Restaurant Group. All the entities are affiliated with Dallas financial consultant Gary Kornman, whose son Michael is president of Premier Interval.

A default by Premier could allow Meralex to foreclose on a $42 million first trust deed securing its loan to Premier, which has asked Nigro to sign documents subordinating other Maxim obligations to those of the trust.

Foreclosure or bankruptcy would allow Premier or Meralex to cancel long-term labor agreements with six unions that helped Nigro keep the Maxim open over the past two years. Recognizing the Maxim's shaky financial structure but hoping to save jobs, the unions had granted concessions to Nigro in return for contracts running through 2003.

Heightening Nigro's suspicions was the recent inspection of the Maxim by a San Francisco investor who said he was operating with "absolute authority" from Gary Kornman and was going to buy the property, shut it down and re-open it as a non-union hotel.

"I told Premier if that visit represented what they were trying to do, don't do it, because they won't survive," Nigro said.

Premier's failure to provide the operating funds constitutes a breach of the contract Premier signed with Nigro's Max Gaming LLC, a management firm that has struggled to keep the property open and conserve its net worth, Nigro said.

But without the money needed to pay the Maxim's vendors, Nigro has been forced to notify workers the hotel-casino will close Dec. 6.

A clearly distraught Nigro issued federally required 60-day closure notices to the resort's employees Thursday after an early morning meeting with officials from the six unions representing the workers.

"We were extremely shocked and offended that the parent corporation had such little regard for these long-term and loyal employees, most of whom had a minimum of five and up to 20 years service," said meeting attendee Walt Elliot, business manager of Bartender's Union Local 165.

"It's unconscionable to not even be informed of any of the plans or intentions of the landlord," he said. "That has forced Mr. Nigro to place the ultimatum that he is mandated by law to effect, which is a 60-day closing notice since the property will no longer have a licensed gaming operator.

"This is an unprecedented procedure in employee relations for a casino of this magnitude," Elliot said. "In my 40 years in Las Vegas I've never encountered more callous disregard for employees."

"We're going to do everything we can to make this equitable for our members," said Gary Leffner, an Operating Engineers Local 501 business representative who also attended the meeting.

"We have reason to believe this is an attempt to bust the union and we will do everything in our power to support and fight for our long-term workers at the Maxim in order to ensure their economic survival," said D. Taylor, staff director of the Culinary Local 226.

Nigro struggled to maintain his composure as he described what this means to the employees who've been loyal to the Maxim throughout its travails.

"I don't know what they're going to do," Nigro said of the workers facing a bleak holiday season. "Some of them have been here since the property opened in 1977. Everyone pitched in to keep the Maxim open over the past two years.

"What infuriates me, in addition to what's happening to the employees, is that Premier had agreed to assume leases, labor contracts and other obligations when they bought the Maxim last May.

"It now appears they're content to let it go back into bankruptcy and walk away from those obligations."

Another factor that puzzles Nigro is that a closed hotel-casino has far less value and would cost more to maintain than keeping it open. When a previous owner was faced with deciding whether to keep the money-losing Maxim open, it found the potential sales value dropped to an estimate $16 million to $18 million -- half the price Premier paid for the functioning facility in May.

And while the Maxim is currently expected to post a cash-flow shortfall of $800,000 by December, that's still less than the estimated $2 million to $3 million it would cost the owner to maintain insurance, security and minimal maintenance if the property's doors were shut.

Neither Gary or Michael Kornman responded to requests for interviews Thursday or today, and receptionists answering phones for Premier refused to provide any information about Premier, Jenkins Baldwin or International Restaurant Group.

Another Premier executive, Don Saunders, referred all questions to the firm's former general counsel, Tom Russell. Russell said he'd resigned Sept. 1 as an officer and director of Premier and was unable to comment.

But late Thursday, Premier President Michael Kornman issued a one-paragraph statement professing to be "surprised" by Nigro's action.

"Because of confidentiality agreements, we are unable to discuss specific business issues raised by (Nigro's) Max Gaming," Kornman's statement said. "However, we can say that there have been substantial, significant and continuous losses at the hotel."

Under Nigro's leadership, the Maxim has seen its average daily room rate, occupancy rate and restaurant business rise, though the casino -- filled with 22 table games and 700 mostly outdated slot machines that he hasn't been allowed to replace -- has lost business to larger nearby properties.

For the year, the average daily room rate will be about $49 and average occupancy rate in the high 80 percent range. They're currently running in the low 90s and about $58, respectively.

"I knew they were setting up Premier as a limited-liability corporation and I knew money would be an issue," Nigro said Thursday. "In retrospect, I wish I'd insisted the money be put in escrow, and we wouldn't be here today."

Premier was formed to buy the Maxim in May from West Coast Mortgage Ltd., Nigro said. Premier had no assets, but was able to borrow $42 million from Meralex to fund the purchase, a pattern Nigro said mirrors the "greenmail" tactics practiced by some corporate raiders in the past.

Such tactics constitute "pure financial maneuvering," he said. In some cases, raiders break up acquired companies, in the process eliminating long-term union contracts that could scare off potential new acquirers, and sell the underlying assets.

West Coast had foreclosed on previous owner Maxim John Anderson when the California tomato farmer defaulted on $75.5 million of bank and mortgage loans.

The Federal Deposit Insurance Corp. accused Anderson, who had bought the Maxim in 1981 for about $60 million, of "looting" the property's assets. The FDIC had received a pledge of Maxim stock after taking over a bank that lent money to Anderson.

West Coast, the Maxim's biggest creditor with a $42 million loan, took control of the hotel-casino during the bankruptcy proceedings. To avoid undergoing a long and costly licensing investigation, West Coast asked that Nigro be approved as receiver and operate the resort on its behalf while the mortgage company looked for a buyer.

When Premier took control after paying $36.5 million to West Coast, Nigro's contract to manage the property ended. But Premier, which also wanted to avoid a license probe by gaming regulators, asked Nigro to sign a new five-year agreement to manage the hotel-casino.

The new contract, which was approved by the state Gaming Control Board, included a provision that called for Premier to provide Max Gaming with a $2 million line of credit. And it required Premier to deposit any draw requests into Max Gaming's bank account within 24 hours.

Nigro had requested the credit line in anticipation of cash-flow shortages during the normally slow summer months. Premier complied with one request for $500,000, then didn't respond to another request made in August.

Nigro sent several letters to Premier and its attorneys, warning them of the consequences if they failed to comply with the contract.

"I told them I can't operate without cash and would have to terminate the lease," Nigro said. But he received no response to the warnings, forcing him to notify Premier he was nullifying the contract and closing the hotel.

That prompted a trip to Las Vegas earlier this week by Michael Kornman, who said he was "not at liberty to discuss" the reasons for Premier's non-action, according to Nigro.

"Now I have to fire 791 people, and that's not why I came here," the emotionally shaken Nigro said. "These are people who are very personal to me. I brought some in from other cities, and there are some who've been here for 20 years or more.

"Some of these people have termination agreements that were disclosed to Premier and were part of the contract they signed."

The gaming executive, who also runs a real estate development company, is using his monthly management fee to pay some of the Maxim's suppliers so the property can stay open until Dec. 6. And he vowed to continue the battle to save the 22-year-old hotel-casino.

"I'm going to use every possible legal way I can find to force them to comply with the lease," Nigro said.

Nigro started in the gaming industry 30 years ago, working as an aide to the general manager of the old Landmark. He soon joined Del Webb Corp., first as manager of the Sahara hotel-casino when that company owned it, then as head of all Del Webb's Nevada gaming operations.

He later joined forces with entertainer Johnny Carson in a bid to buy the Aladdin.

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