Hard Rock hotel says profit tumbled in third quarter

By Steve Green

Wednesday, Nov. 10, 2010 | 8:23 a.m.

The owner of the Hard Rock hotel-casino in Las Vegas today posted, as expected, a steep loss for the third quarter and warned it's having trouble making its debt payments.

Hard Rock Hotel Holdings LLC, owner of the 1,500-room property on Paradise Road east of the Las Vegas Strip, said it lost $31.3 million in the quarter ended Sept. 30, a deterioration from the $18.2 million lost in the year-ago quarter.

Expansions at the property caused net revenue to grow from $48.9 million to $60.5 million. Costs and expenses also grew, though interest expense fell from $19.3 million to $16.5 million.

Trouble meeting debt obligations by the company was revealed Nov. 3 by Morgans Hotel Group of New York, its manager and a minority investor.

In today's quarterly report, Hard Rock reiterated its cash flow was insufficient to fully cover debt payments during the nine months ended Sept. 30 and that its owners tapped reserves to meet liquidity needs.

This was blamed on "the downturn in the Las Vegas economy, the company’s high degree of leverage and seasonality."

"The company anticipates that its subsidiaries may not be able to fully fund both their operating expenses and debt service under their credit facility solely from their revenues until the economic conditions affecting Las Vegas have improved from their current conditions. If there is an event of default under the credit facility, the lenders could take certain actions that would have a significant negative impact on the company," today's report said.

"The company is reviewing its options to identify the best possible resolution to its liquidity position, including pursuing discussions with its subsidiaries’ lenders. Additional potential sources of liquidity may include licensing or sale of the company’s intellectual property or additional debt or equity financing," the hotel-casino said.

Debt problems at the Hard Rock and other Las Vegas properties are common as many expanded -- lifting the city's hotel room count -- just as the recession began in late 2008 and reduced visitation to Las Vegas.

Hard Rock CEO Joseph Magliarditi was asked Oct. 1 by In Business Las Vegas, a sister newspaper to the Las Vegas Sun, how the company would deal with its $1.3 billion in debt and liabilities.

"We simply cannot afford to carry $1.3 billion in debt. We, like other companies in the valley, have to come up with a solution because we cannot service, in this economy, that amount of debt level," Magliarditi said at the time.

The Hard Rock hotel-casino is majority owned by Credit Suisse Group AG subsidiary DLJ Merchant Banking Partners.

It operates the property under a license with Hard Rock Cafe International.

Hard Rock Cafe on Sept. 21 sued the Las Vegas casino, charging the reality TV show "Rehab: Party at the Hard Rock Hotel" was tarnishing the image of the Hard Rock brand.

The Las Vegas hotel-casino reiterated in today's filing: "The company believes the claims are without merit, among other reasons, because it is entitled to use and sublicense the Hard Rock marks pursuant to a 1996 license agreement. The company intends to vigorously defend the suit."