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Gaming Guru

Arnold M. Knightly
 

Herbst Gaming reorganization plan gets OK

2 November 2009

LAS VEGAS, Nevada -- Herbst Gaming is positioned to become the first Nevada casino company to emerge from bankruptcy.

The casino and slot route operator company Friday won court approval of a reorganization plan that will hand the company to its secured lenders, leaving nothing for noteholders owed $363 million.

Bankruptcy Judge Gregg Zive in Reno approved the plan Friday, overruling objections from the noteholders and other low-ranking creditors who claim the three Herbst brothers drove their company into bankruptcy by doubling its debt to $1.15 billion through a pair of acquisitions in 2007.

The company spent $140 million to acquire five Northern Nevada casinos and $349 million to purchase the three Primm casinos -- Whiskey Pete's, Buffalo Bill's and Primm Valley Resort -- from MGM Mirage in 2007.

As part of the reorganization plan, the company agreed not to file lawsuits related to the 2007 expansion, a decision opposed by unsecured creditors. The creditors argued they could potentially be paid more by suing lenders and the Herbst family.

"I find the probability of success to be very low," Zive said in court, referring to the potential lawsuits.

Herbst, which has about 5,400 employees, owns 12 casinos in Nevada, two in Missouri and one in Iowa. Locally, the company owns the 275-room Terrible's hotel and casino.

It also has a 600-location, 6,800-machine Nevada slot route.

Sean Higgins, Herbst's general counsel, Friday said the company will not comment until early next week on the court decision.

The Las Vegas-based gaming company filed for bankruptcy March 22, claiming it had agreements with creditors to be divided into two holding companies. One holding company, owned 100 percent by the lenders, would cover the casinos. A second holding company, owned 90 percent by the Herbst brothers and 10 percent by the lenders, would cover the slot machine routes.

That deal fell apart after noteholders attacked it.

The secured lenders, represented in the case by their agent, Wilmington Trust Co., are owed $876.5 million. Their identities were not made public as part of the company's reorganization plan.

The lenders will receive 100 percent of Herbst Gaming, both the casinos and slot routes, once the company reorganizes. The new company will issue $350 million in new senior secured bank loans as part of the reorganization.

Timothy P. Herbst, Edward J. Herbst and Troy D. Herbst will have their equity, which was held in family trust, wiped out by the reorganization, according to court documents.

The brothers remain directors of the company after the reorganization with Troy Herbst as the company's chief executive officer.

Gerald Gordon, attorney for Herbst Gaming, said the plan will take nearly a year to gain approval from gaming regulators where the company operates.