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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Bankruptcy exit near for Herbst Gaming

29 January 2010

LAS VEGAS, Nevada -- Herbst Gaming will emerge from bankruptcy next week but it may take up to a year to determine the makeup of the Las Vegas-based casino company and slot machine route operator.

In a filing with the Securities and Exchange Commission Thursday, Herbst Gaming said its Final Plan of Reorganization, which was approved by the U.S. Bankruptcy Court in Reno in October, will become effective next Friday.

The plan will hand the entire company over to its secured lenders.

According to the SEC filing, Herbst Gaming will be dissolved and converted into a reorganized holding company with assets worth about $914.8 million.

Reno attorney Sean McGuinness, who represents the company's secured lenders, said a license application was filed with Nevada gaming regulators Wednesday. However the logistics for the daily operation of the company once regulators approve of the new structure is still being explored.

Herbst Gaming has 12 casinos in Nevada, one casino in Iowa and two casinos in Missouri, along with a 600-location, 6,800-machine Nevada slot route.

"Essentially, we're forming a gaming company in reverse," McGuinness said.

He said the lenders are still determining who will be the officers, directors and key executives of the reorganized entity.

McGuinness said he expects the licensing to take up to a year to complete because it involves multiple jurisdictions.

By filing for a license as a public company, only entities or individuals owning more than 10 percent of the entity are mandated to be licensed by Nevada gaming regulators. Officers and directors also have to be licensed.

According to the application filed with the Gaming Control Board, Edward Mulé and Robert O'Shea, two principals with a Connecticut-based hedge fund, Silver Point Capital, have applied for licensing.

Gaming regulators said a key focus would be on the management of the casinos and slot route.

Until the reorganized Herbst Gaming is licensed in the three states, the current management will continue to operate the routes and casinos, including the three Primm resorts and the off-Strip Terrible's. The company has roughly 5,400 employees.

McGuinness said 142 lenders make up the group. The gaming license application is for the holding company. It's unclear what role, if any, the current Herbst corporate management will have in the reorganized operation.

"The process would be complete, but, because we're a gaming company, nothing can be done until gaming regulators give their approval," Herbst Gaming general counsel Sean Higgins said.

Herbst Gaming was privately held by brothers Edward, Tim and Troy Herbst, but had publicly owned debt of $1.15 billion when the company filed for bankruptcy last March.

Originally, Herbst had agreements with its creditors to divide the operation into two holding companies. One would have been owned 100 percent by lenders that covered the casinos. The second company covering the slot routes would have been 90 percent owned by the brothers and 10 percent owned by the lenders.

However, the deal fell apart when it was attacked by noteholders who were owed $363 million. The reorganization's final plan leaves nothing to the noteholders.

Two acquisitions in 2007 put Herbst Gaming into financial trouble: a $140 million deal to purchase five Northern Nevada casinos, and the $349 million buyout of the three Primm properties from MGM Mirage.

Secured lenders were owed $876.5 million.