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Herbst Gaming expects to exit bankruptcy by next year3 December 2010
By Howard Stutz
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.
"Everything stays the same with the properties and nothing changes," Herbst Chief Operating Officer Ferenc Szony said Thursday. "Once we get past the bankruptcy, we can focus all our efforts on solid operations, which is really what we have been doing during this process."
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 approval 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.
According to documents filed with Nevada gaming regulators, Herbst would have five divisions: Southern Nevada, Primm, Northern Nevada, the Midwest and the slot routes. Southern Nevada would include the Terrible's-branded casinos in Las Vegas, Henderson and Pahrump.
The new company will no longer count members of the founding Herbst family as part of the ownership or management. A federal bankruptcy judge this year approved a reorganization plan in which Herbst brothers Ed, Tim and Troy ceded ownership and control of the operation they founded and built.
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 Greenwich, Conn.-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 retailer Borders Group, and longtime casino gambling equipment company executive Mike Rumbolz.
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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