Published Sunday, March 22, 2009 | 12:53 p.m.
Updated Sunday, March 22, 2009 | 6:22 p.m.
- Betting it all on bankruptcy? (3-17-09)
- Before recession, success further fed gaming industry’s egos (3-16-09)
- Herbst Gaming seeking bankruptcy protection (3-10-2009)
- Casino winnings plunge 14.7 percent in January (3-10-2009)
- Some casinos might be for sale, but pricing them is tricky business (3-9-09)
Herbst Gaming Inc. of Las Vegas said it filed for Chapter 11 bankruptcy protection on Sunday and that on Monday it would ask a bankruptcy judge for approval to continue paying its daily expenses while it carries out an agreement with creditors that will restructure debt and break apart the company.
The voluntary plan of reorganization, filed in U.S. Bankruptcy Court in Reno, incorporates the terms of the restructuring agreement the company entered into with its senior lenders earlier this month and that was announced on March 10. The company at the time said holders of 68 percent of its senior debt had signed off on the deal.
Maya Pogoda, a company spokeswoman, said the filing was made on Sunday, rather than a normal workday, because Herbst lawyers had completed the paperwork and want to go before the court Monday for a "first-day'' hearing. In bankruptcy court, this is a procedure for debtors to gain approval to pay immediate expenses such as payroll.
She said there was no pressing financial matter that caused the weekend filing. A copy of the bankruptcy petition was not immediately available for review.
"Since we already have an agreement in place on a restructuring with our secured lenders, the company expects to confirm the plan of reorganization expeditiously and without disruption to our business," Chief Executive Troy Herbst said in a statement. Troy Herbst and his brothers Ed and Tim own the business.
Herbst Gaming said that during the Chapter 11 process, Herbst will continue normal operations under the direction of existing management.
On March 10, Herbst announced the restructuring agreement that would reduce debt by converting more than $848 million in bank debt into new debt and equity and cancel more than $330 million in bond obligations. Under the plan, the Herbst lenders will take control of 15 casinos in Nevada, Iowa and Missouri; but the Herbst family will maintain a 90 percent ownership stake in Herbst Gaming's slot route business that includes 6,800 slot and other gaming machines at locations such as gas stations, bars and grocery stores throughout Nevada.
The Herbst family gained the 90 percent stake in exchange for a new "gaming device license agreement,'' which appears to relate to the placement of slot machines in Terrible Herbst convenience stores owned by the siblings' father Jerry Herbst. The latest company filing showed Herbst Gaming paid Terrible Herbst $1.8 million in rent for slot machine placements in the three months ended Sept. 30. At the new slot company, the Herbst family will select three members of the board of directors and the lenders will choose the fourth, though the lenders will be able to exert more control if cash flow requirements are not met.
The prepackaged bankruptcy deal with the lenders says that of the $848 million in bank debt, $175 million will be allocated to the slot company, $475 million to the new gaming company and the remaining $198 million converted into all of the equity in the new casino company and 10 percent in the new slot company.
Pogoda said the Herbst family's Terrible Herbst convenience store business is separately owned and is not filing for bankruptcy. That business consists of about 80 convenience stores in Nevada, California, Arizona and Utah that typically have carwashes, oil-change bays and emission inspection services.
A filing with the Securities and Exchange Commission also shows that after the bankruptcy, the three Herbst siblings will work for the slot company for a combined annual salary of $2.077 million.
Herbst Gaming on Sunday emphasized that to ensure the process is seamless, the company is seeking authority from the bankruptcy court to pay employees and cover their benefits without interruption or delay. Herbst also said suppliers will be paid in a timely fashion.
Herbst said that despite the recession, all of its casinos and the slot route business are generating positive cash flow -- meaning it has liquidity to meet payroll and cover operating expenses during the bankruptcy process.
"Today’s action is the most effective means to implement our debt restructuring and achieve a capital structure that fits current business conditions. We are pleased to have a found a solution to our burdensome debt load that allows the company to preserve jobs and ensure normal daily business operations," Troy Herbst said.
In Southern Nevada, Herbst Gaming owns three casinos in Primm on I-15 at the California border that it acquired from MGM Mirage in 2007 for $394 million. They are the Buffalo Bill's, Primm Valley and Whiskey Pete's hotel-casinos.
Herbst also owns the Terrible's hotel-casino in Las Vegas at Paradise and Flamingo roads, two casinos in Pahrump, one in Searchlight and the Terrible's Town casino in Henderson. Its Northern Nevada casinos are in Reno, Sparks, Verdi and Dayton. It has one casino in Iowa and two in Missouri. In all, some 5,400 people are employed by the company's casinos.
For the three months ended Sept. 30, Herbst said revenue of $213.4 million was down from $237.3 million in the corresponding quarter of 2007. It lost $22.4 million compared to a loss in the year-ago quarter of $28.9 million.
In that financial report, Herbst noted it was struggling under the weight of its $1.176 billion in long-term debt and that business had slowed because of the recession and high gasoline prices in 2008. The company had acquired the Primm casinos along with the Sands Regency in Reno and several smaller properties in Northern Nevada (for $149 million) in early 2007, just before the economy slowed down.
Herbst also said a smoking ban in some Nevada slot route locations, along with some grocery stores and drug stores closing due to the recession, hurt its slot route business. The route had 6,800 gambling machines in the fall of 2008, down by 600 machines from the 2007 quarter.
Steve Green can be reached at 990-7714 or [email protected].