Riviera bankruptcy plan includes new equipment, improvements

By Steve Green

Monday, Aug. 30, 2010 | 10:51 a.m.

The Riviera Las Vegas hotel-casino would be spruced up and receive new gaming equipment under its parent company's bankruptcy reorganization plan.

Unable to service its approximately $291 million in debt and liabilities, Riviera Holdings Corp. filed for Chapter 11 reorganization in Las Vegas on July 12.

Investors led by longtime hotel and gaming industry executive Barry Sternlicht of Starwood Capital Group have acquired some of the debt and intend to lead the company out of bankruptcy.

Besides its 2,075-room Las Vegas property, the company owns the Riviera Black Hawk casino in Colorado.

The company this month said that in the second quarter, it lost $4.2 million or 34 cents per share vs. a loss in the year-ago quarter of $13.5 million or $1.08.

Net revenue of $32.3 million was down from $34.6 million as the Riviera Las Vegas continued to suffer from its isolated location on the northern portion of the Las Vegas Strip as well as the over-supply of hotel rooms and gaming space in Las Vegas.

In a Friday update to its disclosure statement for its reorganization plan, Riviera Holdings noted that it's been conserving cash and not investing much in capital improvements.

That would change under the new ownership, with exterior paint, select window treatments, elevator upgrades and exterior and interior signage improvements planned for Riviera Las Vegas; and new slot machines and gaming software and hardware planned for Riviera Las Vegas and Riviera Black Hawk.

Under these plans, maintenance and capital spending would jump from about $3.6 million this year to about $9 million per year through 2015.

The disclosure statement and reorganization plan note the reorganization proposal calls for Riviera Holdings to replace its $291 million in liabilities with a $50 million term loan and potentially an additional $30 million in term loans and working capital.

Financial projections filed with the documents show the value of the company emerging from bankruptcy would be $216.5 million.

Projected net revenue of $138 million in 2010 would increase to $140 million in 2011, $145 million in 2012 and $171 million by 2015.

Riviera, which is currently not paying interest on its debt, would have to make interest payments after it emerges from bankruptcy. With these payments, the company is projected to lose $6.1 million in 2011 and continue losing money until 2015, when a profit of $1.5 million is projected.

However, the losses from 2011 through 2014 would be mostly on paper. That's because they include accounting charges of ranging from $13 million to $17.5 million per year for depreciation and amortization.

Riviera's disclosure statement notes that during the economic boom, several hotel-casinos on the Las Vegas Strip had real estate valuations that peaked in 2007 at $30 million per acre. A recent appraisal found the 26-acre Riviera is valued at $157.2 million, or about $6 million an acre.

The Riviera noted that the mothballing of the nearby Echelon (former Stardust) and Fontainebleau resort construction projects and the lack of development of the New Frontier site has harmed properties in the area that include Circus Circus and the Sahara.

"The effects of such nearby vacant lots and uncompleted projects have been considerable. Although Riviera Las Vegas has fewer neighboring competitors, there are also fewer reasons for customers to venture to the north end of the Strip. Overall, the transformation of legendary casino resorts into vacant lots and inactive construction zones has greatly reduced the vitality of the area, and the attractions and synergies that such competitors once provided have been completely eliminated," Riviera's filing said.

"Compounding these difficulties is that Riviera Las Vegas has always relied on walk-in traffic by capitalizing on its Strip location, and its close proximity to several major casino properties as well as the Las Vegas Convention Center and several timeshare and condominium projects. Not only has walk-in traffic diminished due to the reduction in casinos and other attractions along the north end of the Strip, but any remaining foot traffic near Riviera Las Vegas is further reduced due to inaccessibility to the property due to construction hazards at nearby properties, streets or walkways," the filing said.