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Arnold M. Knightly

Debt hangs over group of gaming companies

17 August 2009

LAS VEGAS, Nevada –- A group of earnings reports from smaller gaming companies had a common theme Friday: Revenues continue to fall while the companies talk to creditors about restructuring debt.

Planet Hollywood Resort expressed concern Friday that it may not be able to generate enough cash flow to fund financial commitments that include monthly payments on a $860 million loan.

A filing with the Securities and Exchange Commission said: "Absent a capital contribution" from the property's owners, or "an equity investment by third parties or a restructuring" of the debt, the owners "do not believe that cash generated from operations, cash held in reserve by the lenders under the loan agreement ... will be adequate to meet the anticipated working capital and debt service obligations" of Planet Hollywood Resort through Dec. 31.

The filing warned that the property could default if the Strip property's ownership fails to modify its loan agreement or secure additional capital investment.

Sharp decreases in revenue and debt load payments drove the property's net loss of $13.6 million in the second quarter ended June 30, a small improvement from the $14.3 million loss posted a year earlier.

Quarterly revenue fell 16.1 percent to $60.6 million from $72.2 million.

Cash flow, defined as earnings before interest, taxes, depreciation and amortization, fell 47.8 percent in the quarter to $5.8 million from $11.1 million.

Casino revenues slipped 8.5 percent in the quarter and revenues for the 2,496-room hotel fell 24.8 percent. Average daily room rates dropped to $96 from $136. Occupancy fell to 91.6 percent from 97 percent last year.


Hooters Hotel posted a second-quarter net loss of $5 million as the property continues to work with its lenders on a possible financial restructuring.

The loss reverses a $2.3 million profit posted a year earlier.

The property is in default on $144.5 million in debt, but is talking with lenders led by Wells Fargo Foothill about restructuring or selling the property. The property's ownership said March 31 that it was not going to make interest payments on its debt.

Quarterly revenue fell 28.7 percent to $11.7 million in the quarter.

Cash flow fell 95.4 percent to $86,000 in the quarter.

Casino revenues fell 37.2 percent in the quarter and hotel revenues fell 32.8 percent, which includes the spa and retail. Occupancy for the 696 rooms was 84.6 percent, down from 97.6 percent last year.


Nearly 80 miles northeast of Las Vegas on Interstate 15, Black Gaming trimmed its second-quarter loss through cost-saving measures that included a continued pullback of operations at the company's Oasis property.

The Mesquite-based company, which also operates the CasaBlanca and the Virgin River, is in default on $205.8 million in debt, but continues to discuss restructuring with representatives of its debtholders and Wells Fargo Foothill.

Black Gaming posted a net loss of $4.8 million in the quarter, a 76 percent swing from the $20.3 million loss posted for the same time last year.

Quarterly revenues fell 24.2 percent to $27.3 million.

Quarterly cash flow improved to $4.6 million from a negative cash flow of $8.6 million in 2008.

The Oasis now operates with 16 slot machines; the property's 900-room hotel, recreational park and convention facilities are still available on an overflow basis. The Oasis' Palms Golf Course, gun club and time shares remain open.


While many casino operators' financial futures remain uncertain, Herbst Gaming is preparing to emerge from Chapter 11 bankruptcy, maybe as early as this year.

Ballots were issued Wednesday to creditors to approve or disapprove the reorganization plan. The ballots are due Sept. 15 and a confirmation hearing is scheduled to run Oct. 28-29 in Reno.

Under the plan, some creditors will receive 100 percent of the equity of the reorganized Herbst Gaming in addition to a $350 million new senior secured bank loan issued by the new company. The loan and equity will replace the current outstanding debt balance of $875.9 million.

Herbst Gaming posted second-quarter net income of $4.5 million, but a loss of $28.4 million in the first six months.

Second-quarter revenues fell 15.6 percent to $172.7 million.

Casino operation revenue fell 3.6 percent in the quarter. Slot-route operations fell 18.3 percent and 17.5 percent respectively.