Familiar faces stay despite overhauls
Howard Stutz INSIDE GAMING
The near financial collapse of several Las Vegas-based gaming companies didn't shake the system.
Gaming revenues in the Las Vegas locals market have spiraled downward some 15 percent since 2008, pushed by the recession, record unemployment, a declining housing market and the diminished construction industry.
The lost business compounded the already shaky corporate financial structures that several casino operators brought upon themselves through leveraged buyouts, development projects or other ill-timed decisions.
Creditors and banks, however, didn't want to run the casinos.
For the most part, debt was restructured and financing was acquired. Management, however, remained in place.
That's why it's not shocking that George Maloof will continue to operate the Palms.
Maloof's ownership in the 1,300-room off-Strip hotel-casino will drop from 85 percent to 2 percent once gaming regulators approve a restructuring of $400 million in debt. The casino's creditors, investment firms TPG Capital and Leonard Green & Partners, will each own 49 percent of the property.
Without Maloof's marketing skills and vision, the Palms is just another attractive Las Vegas casino. The private equity firms are banking on Maloof keeping the Palms on track while the economy recovers.
The same scenario holds true for Station Casinos. The company emerged from bankruptcy last month largely intact.
Creditors had ample opportunity through bankruptcy to dump the founding Fertitta family and break up the 18-casino company. Boyd Gaming Corp. stood ready to acquire all or part of Station Casinos during the restructuring proceedings. Regional gaming operator Isle of Capri Casinos was prepared to manage several of the company's resorts on behalf of the lenders.
In the end, the banks and unsecured bondholders decided to stick with brothers Frank Fertitta III and Lorenzo Fertitta and their existing management.
The Fertittas put $200 million into the deal and own 45 percent of the new company, their largest stake ever. When Station Casinos was publicly traded, the Fertittas held 9.9 percent. Following a $5.4 billion deal to go private in November 2007, the Fertittas had 25 percent.
But the brothers are not in control. It's presumed Deustche Bank AG (25 percent), JP Morgan Chase & Co. (15 percent) and the former bondholders (15 percent) would vote as a bloc on any matter.
The lenders forgave $4 billion of the company's previous $6 billion in debt through restructuring. So it's likely they have the Fertittas on a leash. How long or short is anyone's guess.
The lenders are wagering that the Fertittas and their management team will do what they have done best -- operate the casinos. Before the economy fell apart, the Fertittas were known as decent managers.
That's what the debtholders want to see again, which is why Southern Nevadans have been inundated with the company's "We Love Locals" advertising campaign and a hefty promotional environment. Station Casinos is trying to win back the love of the consumer.
Same with M Resort.
Anthony Marnell III and his family spent close to $1 billion to build M Resort, opening the stylish property during the heart of the recession. The first few months -- helped by a heavy promotional effort -- provided a false sense of security.
Penn National Gaming bought M Resort's $860 million in debt for $230.5 million, a nearly 75 percent discount, less than two years after the resort opened.
At first, it seemed Marnell was out of the picture. Penn executives, however, liked the way he ran the property and gave him a reported five-year deal to serve as the casino's president. Marnell told Nevada gaming regulators he was negotiating with the company for an equity position in M Resort.
Herbst Gaming is the only troubled company that didn't follow the model.
The Herbst brothers, facing $1.15 billion in debt, proposed keeping 90 percent of their slot machine route business while giving creditors 100 percent of the company's casinos. The noteholders objected and the bankruptcy court approved a reorganization that gave senior lenders control of the entire company. The brothers were removed and Herbst Gaming is now Affinity Gaming.
Recently, family patriarch Jerry Herbst formed a slot machine route business -- JETT Gaming -- with the idea of reclaiming the slot machine operations at his company's Terrible Herbst convenience stores.
The more things change, the more they stay the same.
Showing posts with label Herbst. Show all posts
Showing posts with label Herbst. Show all posts
Monday, July 4, 2011
Thursday, December 2, 2010
Herbst Gaming set to emerge from bankruptcy
Herbst Gaming set to emerge from bankruptcy
The reconstituted Herbst Gaming is expected to shed its bankruptcy designation by the end of the year as new management and owners focus on operating the casino company and slot machine route operator.
The Gaming Control Board gave preliminary approval to the company's new makeup Wednesday during a hearing in Carson City. The Nevada Gaming Commission will have final say in the matter on Dec. 16.
Szony and Chief Executive Officer David Ross are overseeing day-to-day operations of the new company, which has 15 casinos and the slot routes.
Herbst operates nearly a dozen casinos in Nevada, including the off-Strip Terrible's Casino and the three Primm resorts located at the Nevada-California border. Herbst also has riverboat casinos in Iowa and Missouri and a Nevada slot machine route operation with more than 6,000 machines in more than 300 bars, taverns, convenience stores and grocery stores.
Szony said the company has already received approvals from Iowa and Missouri gaming regulators and approval by Nevada would put the bankruptcy process to rest.
"Getting approval allows us to move forward and no longer be sidelined or distracted," Szony said.
The bankruptcy, which was filed in March 2009, wiped $1.1 billion in debt off the books but left a consortium of lenders owning the business. Silver Point Capital, a Connecticut-based hedge fund that focuses on distressed properties, has a 16 percent stake in Herbst. Bondholders, who were unsecured creditors, lost an estimated $362 million.
Ross and Szony are two members of the company's six-person board of directors, which includes former Las Vegas Sands Corp. Chief Financial Officer Scott Henry, who is now CFO of bookselling chain Borders Group, and longtime casino gambling equipment company executive Mike Rumbloz.
Herbst Gaming began as a slot machine route operator, owning games in bars, taverns and restaurants throughout Nevada and sharing the revenues with the establishments' owners. The company grew substantially in 2007, spending $140 million to acquire five Northern Nevada casinos and spending $349 million to acquire Primm Valley, Buffalo Bill's and Whiskey Pete's from MGM Resorts International.
However, a voter-enacted smoking ban inside taverns and restaurants sent gamblers to casinos and damaged revenues from route operations. The troubled economy contributed to Herbst's problems and the company couldn't manage its long-term debt obligations that came about because of the casino acquisitions.
"It's disappointing because we worked hard at building an outstanding business," Former Herbst CEO Troy Herbst said in March 2009. "Even now, our casinos and our routes are generating positive cash flow. They are making money. It's just the debt that has overwhelmed us."
The original bankruptcy plan called for the company to be divided into two separate holding companies; one for the casinos owned 100 percent by Herbst lenders and a second for slot routes, which would have been owned 90 percent by the three Herbst brothers.
As the process worked its way through the court, the senior lenders were given control of the entire company.
Longtime Herbst corporate employees left the company earlier this year, including general counsel Sean Higgins and CFO Mary Beth Higgins.
The reconstituted Herbst Gaming is expected to shed its bankruptcy designation by the end of the year as new management and owners focus on operating the casino company and slot machine route operator.
The Gaming Control Board gave preliminary approval to the company's new makeup Wednesday during a hearing in Carson City. The Nevada Gaming Commission will have final say in the matter on Dec. 16.
Szony and Chief Executive Officer David Ross are overseeing day-to-day operations of the new company, which has 15 casinos and the slot routes.
Herbst operates nearly a dozen casinos in Nevada, including the off-Strip Terrible's Casino and the three Primm resorts located at the Nevada-California border. Herbst also has riverboat casinos in Iowa and Missouri and a Nevada slot machine route operation with more than 6,000 machines in more than 300 bars, taverns, convenience stores and grocery stores.
Szony said the company has already received approvals from Iowa and Missouri gaming regulators and approval by Nevada would put the bankruptcy process to rest.
"Getting approval allows us to move forward and no longer be sidelined or distracted," Szony said.
The bankruptcy, which was filed in March 2009, wiped $1.1 billion in debt off the books but left a consortium of lenders owning the business. Silver Point Capital, a Connecticut-based hedge fund that focuses on distressed properties, has a 16 percent stake in Herbst. Bondholders, who were unsecured creditors, lost an estimated $362 million.
Ross and Szony are two members of the company's six-person board of directors, which includes former Las Vegas Sands Corp. Chief Financial Officer Scott Henry, who is now CFO of bookselling chain Borders Group, and longtime casino gambling equipment company executive Mike Rumbloz.
Herbst Gaming began as a slot machine route operator, owning games in bars, taverns and restaurants throughout Nevada and sharing the revenues with the establishments' owners. The company grew substantially in 2007, spending $140 million to acquire five Northern Nevada casinos and spending $349 million to acquire Primm Valley, Buffalo Bill's and Whiskey Pete's from MGM Resorts International.
However, a voter-enacted smoking ban inside taverns and restaurants sent gamblers to casinos and damaged revenues from route operations. The troubled economy contributed to Herbst's problems and the company couldn't manage its long-term debt obligations that came about because of the casino acquisitions.
"It's disappointing because we worked hard at building an outstanding business," Former Herbst CEO Troy Herbst said in March 2009. "Even now, our casinos and our routes are generating positive cash flow. They are making money. It's just the debt that has overwhelmed us."
The original bankruptcy plan called for the company to be divided into two separate holding companies; one for the casinos owned 100 percent by Herbst lenders and a second for slot routes, which would have been owned 90 percent by the three Herbst brothers.
As the process worked its way through the court, the senior lenders were given control of the entire company.
Longtime Herbst corporate employees left the company earlier this year, including general counsel Sean Higgins and CFO Mary Beth Higgins.
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