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Arnold M. Knightly

Investors pay second deposit in hopes of buying Hooters

28 November 2007

LAS VEGAS, Nevada -- The investment group working to buy the financially struggling Hooters Hotel paid a second $1.5 million nonrefundable deposit late Monday to guarantee its right to close the deal through June.

When the deposit was not made almost two weeks ago as scheduled, some analysts speculated that the sale to Hedwigs Las Vegas Top Tier might be in trouble.

However, Richard Bosworth of Hedwigs Las Vegas Top Tier said the investment group had been analyzing the capital markets during that time before deciding to go ahead with the purchase.

"We have made the decision that we're very committed to this acquisition," Bosworth said of the proposed purchase of the off-Strip hotel-casino for approximately $235 million.

Bosworth, president of a Santa Monica, Calif.-based advisory firm NTH Advisory Group, described Hedwigs as a "well capitalized private investment group that has the capability of honoring the purchase agreement."

The investment group has made $3 million in nonrefundable payments. The agreement sets a closing date of Dec. 31, but the buyer can ask for extensions until June 30 on a month-by-month basis by paying a $500,000 nonrefundable fee.

Bosworth said it was important to keep the exclusivity agreement in place so 155 East Tropicana, Hooters Hotel's parent company, can not entertain other offers.

"Now we have the unilateral control to extend our closing as late as June 30 which gives us time with the capital markets," Bosworth said. "It is our expectation level that time becomes our friend."

Analysts remain skeptical that the property will be sold to Hedwigs because of the current credit crunch.

Add to that the poor financial performance of Hooters Hotel, and the task of obtaining financing becomes more daunting.

"With the credit markets under pressure, with the inability to readily raise capital, unless the buyer plans on putting in a significant amount of equity it would be a very difficult deal to finance given where current performance is at," said Andrew Zarnett, a gaming analyst with Deutsche Bank.

One of the key components lenders examine when looking at the financing of a proposed deal is the current cash flow of a business. At Hooters Hotel, cash flow has been falling.

Cash flow, defined as earnings before interest, taxes, depreciation and amortization, dropped 32 percent to $1.1 million for the third quarter ended Sept. 30. It was $1.7 million in the same period last year.