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Gaming Guru

Howard Stutz

Herbst Gaming seeks debt fix

29 February 2008

LAS VEGAS, Nevada -- Herbst Gaming, which has taken a financial hit in the past year after a statewide smoking ban cost the company customers in its slot machine route operation, has asked Goldman Sachs to assist in evaluating financial and strategic alternatives, including the sale of the business.

In a statement released Wednesday, Las Vegas-based Herbst Gaming, which significantly grew its statewide casino business through two high-profile acquisitions in 2007, said the alternatives could include a recapitalization, refinancing, restructuring or reorganization of the company's debt, or a sale of some or all of its businesses.

According to a November report by Deutsche Bank, Herbst Gaming had total debt of approximately $1.15 billion as of Sept. 30, much of it publicly held.

Herbst Gaming is privately owned and controlled by three brothers, Ed Herbst, who serves as president and CEO; and Tim and Troy Herbst, who both hold the titles of executive vice president.

In Terrible Herbst' most recent quarterly earnings, Herbst said in November it had a net loss of $28.9 million in the third quarter, which ended Sept. 30, and had a net loss for the first nine months of 2007 of $34.1 million.

Company executives said a statewide smoking ban enacted by Nevada voters in November 2006 and taking effect in January 2007 cut into the company's profits. The ban outlawed smoking in bars, taverns and restaurants -- locations where Herbst operates slot machines as part of its statewide slot machine route. Revenues from the slot route dropped more than 20 percent in the third quarter and are off almost 19 percent through the first nine months of 2007.

"The recent impact from Question 5, the Nevada smoking ban, and general economic weakness has required us to explore our alternatives," Ed Herbst said in a statement. "We are confident that our retention of a financial adviser will help us capitalize on the strength of our brand and position the company to maximize long-term value."

Company executives were not available for comment beyond the statement. Herbst Gaming has not announced a date for the release of its fourth-quarter and year-end earnings.

Herbst Gaming operates 16 casinos in Nevada, Missouri and Iowa. In Nevada, Herbst Gaming has small casinos in Henderson, Pahrump and Searchlight, but has expanded throughout the state. In January 2007, Herbst paid $119 million to buy Sands Regent, which included four Northern Nevada casinos including the Sands Regency Casino in Reno.

Four months later, Herbst Gaming paid MGM Mirage $400 million to acquire three Primm Valley resorts at the Nevada-California border. Herbst also operates Terrible's, an off-Strip casino on East Flamingo Road. Herbst's slot machine route operation business includes more than 7,000 slot machines inside some 700 restaurants, taverns, convenience stores, bars and grocery stores.

"The company has a long history of providing gaming services in Nevada and we believe in the strength of the Terrible's brand," Ed Herbst said.

He added there was no assurance the evaluation by Goldman Sachs would result in any specific transaction.