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StumbleBondholders file appeal over Herbst reorganization plan
Thursday, Jan. 28, 2010 | 4:30 p.m.
Sun Archives
- Herbst’s bankruptcy plan draws ire of creditors, lenders (9-10-09)
- Herbst Gaming files for bankruptcy protection (3-22-09)
- Herbst Gaming seeking bankruptcy protection (3-10-09)
- Primm hotel rates for locals: free (12-09-08)
- Primm hotel closes rooms during midweek (10-30-08)
- Lenders give Herbst Gaming more time to repay debts (5-23-08)
Bondholders standing to lose $362 million in the Herbst Gaming Inc. bankruptcy case on Thursday appealed a Nevada bankruptcy judge’s approval of Herbst’s reorganization plan.
The appeal, which has been expected, was filed with the U.S. Bankruptcy Appellate Panel of the 9th Circuit by attorneys for HSBC Bank USA, trustee for holders of the bonds.
On Oct. 30, U.S. Bankruptcy Judge Gregg Zive in Reno orally confirmed Herbst's reorganization plan in which the $362 million in bond debt would be extinguished. Zive issued a written order confirming the plan Friday.
Under the plan, equity interests in Las Vegas-based Herbst would be canceled and the Las Vegas company would be turned over to secured bank lenders owed another $860 million. The new company would also assume $350 million in debt.
But attorneys for HSBC responded with an amended lawsuit in November charging that Herbst engaged in dubious acquisitions in 2007 and that, consequentially, secured lenders should share in the resulting losses.
Based on Herbst's current value, the bondholders demanded in November’s lawsuit that they recover $153.7 million and that the secured lenders' recovery be reduced by $549 million.
The bondholders' arguments have previously been disputed by Herbst and the secured lenders, led by Wilmington Trust Co. Herbst said it was driven into bankruptcy by the recession, not its debt-financed takeover deals.
Attorneys for HSBC argue in the amended lawsuit that because of a smoking ban and other factors affecting the Herbst casino and slot route businesses, the company was either insolvent or was rendered insolvent by the acquisitions announced in 2007 of the Sands Regent casino operations in Northern Nevada and of Primm Valley Resorts at the California-Nevada border on Interstate 15.
"Despite the debtors’ insolvency or marginal solvency and decline in its slot route business, the debtors entered into two transactions in 2007 which increased their debt load by approximately $549 million and left the debtors deeply insolvent," HSBC charges in the lawsuit.
Some $149 million under Herbst's bank credit facility was used to finance the Sands Regent transaction and another $400 million was used for the Primm deal.
The bondholders charge that Herbst overpaid in both deals, that both deals immediately resulted in losses and deepened Herbst's insolvency, making them "fraudulent transfers" under the bankruptcy code -- meaning the debt associated with the deals can be canceled.
In a filing with the Securities and Exchange Commission on Thursday, Herbst said the reorganization plan is scheduled to be effective on Feb. 5.
On that date, payments to certain secured and unsecured creditors as spelled out in the plan are scheduled to be made.
The plan calls for Herbst to be managed by its existing officers and directors for the time being and says that the restructuring won’t be complete until the fourth quarter of this year.
Between now and then, directors and key employees must receive government and regulatory approvals and the court must rule on motions to accept or reject existing contracts Herbst is a party to.
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If one takes a look at the District of Nevada Bankruptcy Court Docket in the Park Highlands case 09-17424, where there is also an appeal by some of that entity's creditors, the record is clear that unless the appealing creditors seek and obtain a stay of the effectiveness of the Chapter 11 Plan, the Chapter 11 Plan goes into effect despite the appeal.
As a result, unless the Herbst bondholders go the full monte, and seek and obtain a stay, the Chapter 11 Plan approved by Judge Zive will go into effect.
Typo! The case number referred to above should be 09-17474
Please explain. I'm not a lawyer, but I wrote contracts for 30 years...
So Herbst stupidly buys the Primm casinos from MGM, using money lent to them from banks. It always looked like a bad deal, since people from Cali won't stop in Primm, they'll drive 50 more miles to Vegas. Especially since they will now go to Indian casinos if they're not going to Vegas.
So the banks lent the money. Fine. But did they ever do any "due diligence" to determine if the loans were prudent? I doubt it. They gave out the money like candy at a restaurant checkout.
This is much worse than the foolishness happening at Lake Las Vegas. At least it took a long while for LLV to collapse. Closing 2 golf courses, casino going under-it takes time. Ask the fools at the City of Henderson how their 33 million is doing.
Primm is going down like the Titanic. The Herbst's were stupid, but the banks and unsecured creditors were worse. And they won't get a dime. Good.
Terribles should have stuck to their gas stations with mini marts. They were never big enough to run with the big dogs. Cheap easy to obtain loans from foolish banks like nednougat above has stated, seems to be the problem everyone has these days..
"Terribles should have stuck to their gas stations with mini marts. They were never big enough to run with the big dogs. Cheap easy to obtain loans from foolish banks like nednougat above has stated, seems to be the problem everyone has these days.."
FYI Terrible's is owned by Daddy Herbst which has nothing to do with the 3 sons bankruptcy.
pinkbubbles
Yea right, and I have some beach front in Sloan I would like to sell you !
It was one of MGM's smartest moves, selling these Primm properties to Terrible's. Otherweise MGM would have been in trouble there. These casinos are eyeing a rough future and I can't see no indicators that anything is about to change. The Outlet mall has seen better days and so have the casinos out there. Hopefully the roller coaster will remain in operation. I usually do 1 ride per visiting Nevada. This nasty old roller coaster is a tough one, but it's fun.
From Switzerland
http://ir.herbstgaming.com/phoenix.zhtml...
Get your beach property deed out!