Harrah’s taking charge for National’s failure

Wednesday, Nov. 13, 2002 | 11:03 a.m.

SUN STAFF AND WIRE REPORTS

Harrah's Entertainment Inc. said it expects to post a charge of $5.5 million to $6.5 million in the fourth quarter because of a settlement and its exposure to National Airlines Inc.

In its quarterly report filed Tuesday with the Securities and Exchange Commission, Las Vegas-based Harrah's said it provided a $12.25 million letter of credit on behalf of National Airlines, which ceased operations last Wednesday after an unsuccessful attempt to restructure in bankruptcy court.

Harrah's said it may be required in its fourth quarter to pay amounts due under the letter of credit.

In its filing, Harrah's said it settled a dispute with another investor of National Airlines.

During the second quarter of 2001, a Harrah's subsidiary, Harrah's Operating Co. Inc., filed a lawsuit against the investor, Robert K. Moses, for breach of contract due to his failure to reimburse the company for his share of the $8.6 million paid against the second letter of credit.

Moses and National Chairman Mike Conway signed a series of agreements outlining their respective participation in the airline's line of credit with Nevada State Bank. When National filed for Chapter 11 bankruptcy protection in December 2000, Moses and Conway held about 56 percent ownership of the airline and Harrah's had about 43 percent.

Shortly after the bankruptcy filing, Conway and Harrah's signed amendments on the credit line, but Moses refused to sign after each party had orally agreed to the plan.

Harrah's ended up paying the bills when $8.6 million in sight drafts were delivered against the letter of credit. The gaming company filed suit against Moses in April 2001, asking that he pay his share of the $8.6 million liability, estimated at $4.8 million.

A judgment was entered in Harrah's favor and the investor appealed.

Under the settlement, the investor's potential liability on the letter of credit that was funded in November was extinguished, as well as the judgment.

Harrah's received $2.4 million from Moses in October and is due to receive another $1 million in two non-interest-bearing installments of $500,000 each over the next 12 months, the filing said.