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December 19, 2014

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Fitzgeralds in bankruptcy, three casinos being sold

Financial results

As of Oct. 1, Fitzgeralds was operating at a loss, though results had improved marginally from the previous year.

The company reported a loss of $5.3 million for the quarter ending Oct. 1, a slight improvement from a loss of $5.4 million in the year-ago quarter. Net revenues rose 5 percent to $54.5 million, while cash flow increased 13 percent to $26.6 million. The company lost 97 cents per share, compared to $2.89 in the year-ago quarter.

Much of the company's struggles were centered at Fitzgeralds Las Vegas, the only one of Fitzgeralds four properties operating at a loss. The downtown hotel-casino reported a net operating loss of $700,000 for the Oct. 1 quarter, compared to a $812,000 loss in the year-ago period. While operating revenues were relatively flat at $12.3 million, cash flow increased 23 percent to $3.2 million.

As of Oct. 1, the company reported in an SEC filing assets of $219 million, including $33.5 million in cash. Company liabilities were $275.2 million.

A bankruptcy filing by the company that owns a downtown Las Vegas hotel-casino is expected to lead to an ownership role for the nation's only black casino company owner.

Detroit-based Don Barden, owner of Majestic Star Casino in Gary, Ind., plans to acquire three properties belonging to Fitzgeralds Gaming Corp., owner of downtown Las Vegas' Fitzgeralds hotel-casino, for $149 million plus the assumption of some liabilities.

The acquisition plan, through Majestic Star Casino affiliate Majestic Investor LLC, is part of Fitzgeralds' strategy to seek Chapter 11 bankruptcy protection. The company's management team made its filing in U.S. Bankruptcy Court in the Northern District of Nevada in Reno Tuesday.

Under terms of the filing, bondholders would forgive a portion of the company's $205 million in public debt. Both Fitzgeralds and Majestic are privately held companies that use public debt.

But representatives of Fitzgeralds and Majestic Star were upbeat about the plan because, if approved by the Bankruptcy Court, it would enable Barden to take over the properties without closing the doors or having to lay off any employees.

William Noonan, vice president and general manager of Fitzgeralds Las Vegas, said the company filed for a "package bankruptcy," a classification in which terms are agreed upon by the purchaser, the seller and the majority of the bondholders. Noonan said the filing was necessary because the purchase price of the properties is less than amount of the outstanding bonds.

Fourteen separate company bankruptcy filings are expected to be consolidated into one before the case is heard. The cases were filed with the approval of the holders of the majority in interest in the company's 12.25 percent senior secured notes.

Additional details are expected to be outlined in a report to be filed with the federal Securities and Exchange Commission. Noonan said there may be some noteholders that could oppose the deal.

The 14 companies that filed for bankruptcy included Fitzgeralds Reno Inc., doing business as Fitzgeralds Hotel/Casino Reno; 101 Main Street LLC, doing business as Fitzgeralds Black Hawk (Colo).; Fitzgeralds Black Hawk Inc.; Fitzgeralds Black Hawk II Inc.; Fitzgeralds Fremont Experience Corp.; Fitzgeralds Casino/Hotel Tunica (Miss.) doing business as Polk Landing Entertainment Corp.; and Fitzgeralds Mississippi Inc.

Also filing were Fitzgeralds Las Vegas Inc., doing business as Fremont & Third Acquisition Corp.; Fitzgeralds Gaming Corp.; Fitzgeralds South Inc.; Fitzgeralds Reno Inc.; Fitzgeralds South Inc., doing business as Fitzgeralds Gaming Corp.; Fitzgeralds Las Vegas Inc. and Fitzgeralds Inc.

Under terms of the deal with Barden, Majestic Star would take over three properties with a total of 4,300 slot machines, 120 table games, 1,145 hotel rooms and 3,800 employees.

Included in the deal:

Not included in the Majestic Star deal is the Fitzgeralds Reno property, which is expected to be sold by the company sometime in the first half of 2001. Fitzgeralds has begun seeking bidders for the property.

In order for the deal to close, Barden must win suitability approval from gaming regulators in three states. A spokesman for Majestic Star said that process already has begun, but could take up to a year to complete.

But Barden already operates the Majestic Star, a riverboat casino docked on Lake Michigan in Gary, Ind., which serves the Chicago market. He also fought a vigorous but unsuccessful battle to operate one of three casinos sanctioned for Detroit.

"With the addition of these three casinos, Majestic will operate in three of the top five gaming markets in the country," Barden said in a statement announcing the acquisition. "The Fitzgeralds purchase is the first step in our plan to grow Majestic Star beyond our home in Indiana. ... I look forward to working with the many fine employees at these three great Fitzgeralds properties."

Barden, 56, has long wanted into the Las Vegas market.

In the early 1990s, he and pop singer Michael Jackson discussed plans for a casino project near the Gold Coast hotel-casino, but that proposal went nowhere. He and Jackson also made overtures to former Mirage Resorts Inc. Chairman Steve Wynn on a plan for a Hawaiian-themed resort, complete with a replica of Honolulu's famed Diamond Head. But that plan also fizzled.

Barden and Jackson also traveled to the Virgin Islands, Namibia and South Africa in search of investment opportunities, but he ultimately returned to Indiana, where he beat out 20 other competitors for the right to develop the riverboat.

Barden also was named as a possible bidder for the Desert Inn hotel-casino, which was acquired last year by Wynn after MGM Grand and Mirage merged.

Majestic Star Casino LLC was founded in December 1993 and the company's operations began on June 6, 1996. Through October 1997, the casino was operated aboard a chartered boat, but on Oct. 27, the company put its $50.1 million permanent vessel in service, offering 43,000 square feet of gaming on three levels.

Barden, whose companies also are involved in construction, broadcasting, cable television and entertainment, battled hard for a piece of the Detroit market, ultimately won by MGM Grand Inc. (now MGM MIRAGE), MotorCity (backed by Mandalay Resort Group) and the Greektown casino.

Barden went to court to challenge the selection process, conducted by Mayor Dennis Archer. In July 1999, U.S. District Judge Gerald Rosen ruled that Barden voluntarily signed away any right to sue over the casino selection process, which led to MGM Grand's opening later that summer.

Barden appealed. In October this year, the 6th U.S. Circuit Court of Appeals in Cincinnati affirmed Rosen's dismissal and rejected Barden's $108 million suit against the City of Detroit, closing the door in that city.

But Barden's chief operating officer and chief financial officer for the Majestic Star, Michael Kelly, approached Fitzgeralds and helped engineer the deal that was announced Tuesday.

Jef Bauer, vice president of marketing for Majestic Star, and Noonan concurred that Kelly, a former Fitzgeralds executive, was instrumental in putting the deal together. Kelly was travelling Tuesday and could not be reached for comment.

Bauer said Barden is the perfect boss -- an executive who prefers to let his managers use their expertise to run the company. He said he doesn't expect Fitzgeralds to change its operational strategy and key management officials at the three properties have been invited to stay in their current capacities.

Except for the four senior executives -- the company's founders -- all existing managers and employees will retain all seniority and benefits. Union contracts at the Las Vegas property will be continued under the new owners, Noonan said.

"Mr. Barden is a dealmaker," Bauer said. "He's always looking for deals, but he's not a hands-on owner, he leaves the management of the property to the experts. His employees consider him the ideal owner because he puts a lot of trust in his team."

Noonan said he expects a "seamless transition" to the new ownership with customers seeing no visible signs of change.

Bauer said expects Barden "to have fun with the Irish theme" of Fitzgeralds. He said the company has no plans to market specifically or solely to black gamblers, "but considers African American players to be a viable gaming market."

He also said Barden would entertain growth or expansion opportunities in Las Vegas as they presented themselves, but there are no immediate plans for more acquisitions.

Fitzgeralds was on shaky financial ground in 1999 when the company defaulted on $205 million in bonds. The company, which has never revealed the identity of its bondholders, offered a restructuring to prevent the company from falling into bankruptcy.

The move paid off.

Paul Griffith, chairman and majority shareholder of Fitzgeralds, said the company enjoyed a record third quarter with earnings, excluding restructuring costs, of $9.6 million, a 24 percent improvement over the previous quarter.

Griffith said he and his co-founders -- Paul Manske, Max Page and Mike McPherson -- will pursue other opportunities once the Majestic Star deal is completed and the Reno property is sold.

"Fitzgeralds has been an important part of my life since founding the company in 1984," Griffith said in a statement issued Tuesday. "We wanted to be certain that a potential buyer would continue the legacy we've built during the last 16 years including the recognition of the value of the thousands of team members presently employed by our company.

"Majestic Star will be making their first entry into the Nevada, Colorado and Mississippi gaming markets," he said. "They have recognized the excellent potential Fitzgeralds provides and I am certain they will continue the positive momentum we have achieved during the last several years."

In addition to operating Fitzgeralds, Griffith and his team launched one of the nation's first riverboats, the Empress Casino in Joliet, Ill., and opened the first Indian casino in New York, the Turning Stone Casino, with the Oneida Tribe.

The company also managed the Cliff Castle Casino in Arizona for the Yavapai Apache Tribe. The company also owned Harolds Club and the Nevada Club in Reno, selling them to Harrah's in 1999.

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