HOLIDAY BLEAK FOR 3,300; CITY COULD LOSE MILLIONS

Published: Thursday, November 23, 1995
Edition: THIRD
Section: NATIONAL
Page: A1
Byline: By TYLER BRIDGES Staff writer

Text:

Harrah's Casino New Orleans ended weeks of denials that it was in perilous financial straits by filing for bankruptcy Wednesday, idling 3,300 casino and construction workers, punching a gaping hole in the New Orleans municipal budget and triggering what is likely to be a legal brawl with creditors, casino opponents and one of its own business partners.

When it shut down the money-losing temporary casino Wednesday at 4 a.m., Harrah's laid off 2,500 employees, and at 6:30 a.m. it told 800 construction workers on the permanent casino to stay off the job.

It was apparently the largest single-day layoff in the New Orleans area in at least a generation.

"We're all eating chicken for Thanksgiving," said Bryant McDonald, one of the workers laid off at the permanent casino, which promised to be the world's largest.

Meanwhile, New Orleans Mayor Marc Morial, in a news conference Wednesday morning, fretted over how to balance next year's budget, which was depending on $23 million in casino money that suddenly has evaporated, and more than 200 creditors were faced with uncertainty over whether Harrah's would pay them. The state is depending on $75 million in casino money to balance its budget, commissioner of Administration Raymond Laborde said.

"The adverse consequences from the closure depict graphically what we have lost," Gov. Edwards said in a written statement. "It also shows the economic stimulus resulting from the operations. In other words, now that it is gone maybe some of the voices of criticism will take a different tact (sic)." Edwards cut short a hunting trip in Alabama to try to salvage the New Orleans casino, the crowning achievement of his final term. Edwards narrowly won its approval from the Legislature in 1992.

Casino opponents, however, stepped up their criticism.

"We no longer have a legal impediment to halting the casino because the contract has been breached," said C.B. Forgotston, leader of the anti-casino forces. "Now is the time to do the right thing - have the Legislature repeal the casino. The unfinished building should be made an adjunct of the Convention Center."

Although it shut down the casino, Harrah's said it wants to finish the construction project, which had been scheduled to open in June, 1996.

Harrah's New Orleans said finishing it depends on obtaining city and state tax concessions and lower interest rates and extended debt payment deadlines from bondholders financing the casino. Winning these concessions and emerging from Chapter 11 bankruptcy will take at least 90 days, officials said.

But amid the uncertainty of upcoming political and legal battles, giving up on a project that has brought nothing but nightmares is also a serious option for Harrah's Entertainment Corp., the Memphis-based company that owns 50 percent of the New Orleans casino.

"That's one possibility, (but) it's too early to call that," Phil Satre, Harrah's Entertainment Corp.'s president and chief executive officer, said Wednesday in a conference call with Nevada and New Jersey casino reporters. "A restructuring that satisfies all the parties may or may not happen."

In that case, the city and state might seek a new operator to take over the troubled project.

Complicating the effort to salvage Harrah's role in the casino is that Harrah's and one of its partners, Jazzville, are on the verge of open warfare over the size of Jazzville's stake in the project.

Harrah's Entertainment and Jazzville, a group of nine Louisiana businessmen and attorneys, are poised to pursue lawsuits that were filed against each other two months ago but that had been stayed pending an effort at resolving the dispute through negotiations. The dispute centers on Jazzville's contention that Harrah's promised that it would not let Jazzville's share drop below 23.7 percent. Harrah's contends that Jazzville can have a stake higher than its current 13.7 percent share only if it can come up with $33 million in additional funds demanded by bondholders last year.

Asked to describe the relationship between Jazzville and Harrah's, a Jazzville official called it "vitriolic."

While Morial said he hoped the temporary casino would reopen soon, two senior officials with Harrah's New Orleans said they thought it was likely to remain shuttered. Harrah's had projected that the temporary casino, which has operated since May 1 in the gussied-up Municipal Auditorium, would take in $33 million a month but has averaged only $13.1 million - not enough even to cover its operating expenses.

Harrah's spokesman Bob Dowd refused to answer questions.

Harrah's said its actions were forced by its banker, Bankers Trust, which told Harrah's Sunday night that it would not provide $175 million in promised loans because the temporary casino has performed poorly and the permanent casino was projected to take in far less than the $617 million in casino revenue originally forecast by Harrah's.

Unable to tap into the loans, Harrah's said it had no choice but to shut down the temporary casino and stop work on the permanent facility.

Harrah's New Orleans filed its bankruptcy in Delaware, where it is chartered, and won a temporary restraining order there Wednesday from a bankruptcy judge blocking the state casino board from suspending or revoking the Harrah's operating license in New Orleans, said Jenifer Schaye, who represents the casino board for Attorney General Richard Ieyoub. Schaye said the board would be deciding whether to try to have the order lifted and have the Harrah's and Jazzville bankruptcies consolidated in Louisiana. Jazzville filed for bankruptcy late Tuesday night. The filing does not affect the individual partners' finances.

Casino Board Chairman Max Chastain said casino board officials were studying whether the bankruptcy imperiled Harrah's operating license and suitability to remain a partner in the project. The shutdown also led Chastain to wonder whether the board, which has been financed by the casino's operations, would have enough money to meet payroll and work expenses.

Casino board members, who are paid $60,000 a year, have met infrequently in recent weeks amid warnings that Harrah's might be heading toward a financial meltdown.

Besides Chastain, the only members who turned up at the casino board's Canal Place office Wednesday were Bert Rowley, Leroy Melton and Fred Cassibry, and Rowley and Melton left before noon.

Wilmore Whitmore, who served as the board's president until May this year, said the board should be in crisis mode and hold an immediate public meeting to force Harrah's officials to explain what they're doing. Whitmore two weeks ago raised alarms about the casino's financial health but received little response from board members other than Cassibry.

Chastain said the board would not meet until Tuesday. He said having the board hold a meeting in the meantime would only interfere with the staff's efforts to get on top of the situation.

Cassibry, who also raised questions about Harrah's finances two weeks ago, complained that last week he had sought approval to hold a meeting Tuesday but had been voted down by the board's other eight members.

"I can't believe that Harrah's didn't know that the banks were about to shut it down," Cassibry said.

Cassibry in the meeting two weeks ago said he heard that Harrah's had hired a bankruptcy attorney, but Harrah's Entertainment senior vice president Colin Reed denied this at the time, saying, "This casino is going to be built and Harrah's Entertainment is going to make sure it is built."

To emphasize the point, Harrah's bought a full-page newspaper ad Nov. 12 saying it had all the money needed to complete the permanent casino. "Harrah's New Orleans is here to stay!" wrote Harrah's New Orleans President Ron Lenczycki.

While closure of the temporary casino throws its employees out of work, it will help other local businesses, said Timothy Ryan, dean of the University of New Orleans' College of Business.

Ryan said that since most of the money bet at the casino was by New Orleans-area residents, they now will spend that money at other local casinos or businesses.

"They may go to Bally (which operates on Lake Pontchartrain) or the Flamingo (which operates on the Mississippi River at the Poydras Street Wharf) or at McDonald's or at the French Quarter," Ryan said. "Most of those dollars are going to stay in the local economy."

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#ART:

HARRAH'S - THE CLOSING OF THE CASINO

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WHAT HAPPENED WEDNESDAY WITH HARRAH'S NEW ORLEANS CASINO?

The partnership that owns the casino filed for Chapter 11 bankruptcy, which allows it to reorganize with protection from creditors, listing assets of $1,000 and liabilities of $518 million.

WHAT DOES THAT DO TO THE PERMANENT CASINO?

Harrah's says it wants to renegotiate its deals with lenders and state and city government. If a deal can't be reached, Harrah's may abandon the project, although another casino operator might be interested in taking it over. Meanwhile, work has been halted.

WILL THE TEMPORARY CASINO REOPEN?

It doesn't look that way. The temporary casino was supposed to generate $73 million to help finance construction of the permanent casino, but the temporary casino has lost millions. New Orleans is asking the company to reopen the casino to keep the tax money flowing.

WHAT HAPPENED TO THE WORKERS?

2,500 casino employees and 800 construction workers were laid off. They will get the wages they were owed but no severance pay. Harrah's has set up a hotline for workers.

WHAT ABOUT TAX PAYMENTS TO GOVERNMENTS?

They will be suspended. The state was counting on $89 million this year. The city was counting on $8 million from the casino and $15 million from the state to pay for services.

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BASIN STREET BLUES

"It has become obvious to us that the project as it is now configured cannot succeed with its existing financial structure, the current levels of participation by various partners and parties, and the political and operating risks of the market." PHILIP SATRE, head of Harrah's Entertainment.

"To hell with Harrah's. They put us in this position. They said they weren't going to put us in this position and then they did." JIM SINGLETON, New Orleans city councilman.

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2 GRAPHICS

Illustration: Harrah's dealer Michelle Paysse leaves Harrah's temporary casino Wednesday after receiving her walking papers from the company. She is one of 2,500 casino employees who lost their jobs abruptly when the casino shut down at 4 a.m.

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Harrah's permanent casino site is seen Wednesday through a Canal Street fence surrounding the property. Dennis Tucker, a King Construction employee, calls out names and hands out checks at the Harrah's casino site Wednesday.

3 STAFF PHOTOS BY ELLIS LUCIA



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