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Arnold M. Knightly

Riviera may be forced into bankruptcy

1 April 2009

LAS VEGAS, Nevada -- The parent company of the Riviera could be the third local gaming company to be forced to file for bankruptcy within the past 12 months, possibly as early as this week.

Riviera Holdings Corp. announced Tuesday that it didn't make a $4 million interest payment that was due Monday.

The casino operator said in a statement that it has a three-day grace period to make the payment on the $245 million credit facility with Wachovia Bank or face default. The company, however, said it does not intend to make the payment.

Riviera Holdings Chief Executive Officer William Westerman said the company decided against making the payment so it could maintain liquidity.

He said "devastating competitive pressure on room rates" and falling convention attendance in Las Vegas has cut the company's revenues, although he also noted that the company is "confident that we will maintain sufficient cash flow to meet our operating obligations and maintain our properties."

The Riviera on the Strip, which employs 1,137 workers, saw hotel room revenue drop 12.5 percent last year as occupancy fell 9.2 points to 83.8 percent, the company reported Tuesday.

The announcement that Riviera Holdings had missed the interest payment came the same day the company reported a fourth-quarter net loss of $12.7 million, or $1.02 a share, compared with a loss of $6.14 million, or 50 cents a share, for the quarter ended Dec. 31 a year earlier.

Revenues fell 24 percent to $36 million.

Revenues fell from $205.5 million in 2007 to $169.8 million in 2008.

"The deteriorating trends in revenue and earnings experienced during the first three quarters of 2008 continued as evidenced by our fourth-quarter results and accelerated during the first quarter of 2009," Westerman said in a statement "We expect this situation to continue as long as competitors in the Las Vegas market follow a strategy of sacrificing (average daily room rates) to maximize room occupancy and the decline in convention business is unabated."

The recession has cut into revenues at all of the local gaming companies, and many of them are considering seeking bankruptcy protection or have already filed to restructure their heavy debt loads.

Tropicana Entertainment has reached an agreement with its lenders that could bring the company out of bankruptcy by May, about a year after filing when the company lost its gaming license in New Jersey. Herbst Gaming filed for bankruptcy protection last week because of declining revenues due to the recession and a local smoking ban that has hurt its slot route operations.

Riviera Holdings, which also owns a casino in Colorado, said it is trying to negotiate a new bank agreement that would let the company restructure outside of bankruptcy court.

However, "we cannot assure you that we would be successful in completing a refinancing or consensual out-of-court restructuring, if necessary," the company said in a statement. "If we were unable to do so, we would likely be compelled to seek protection under Chapter 11 of the U.S. Bankruptcy Code."

Mike Sullivan, a finance professor at the University of Nevada, Las Vegas, said Wachovia is in a position to dictate terms to Riviera and is probably in the process of figuring out what is in its best interest.

"Wachovia is probably deciding what they want to do and how to structure things," he said. "Are they better off going through a formal Chapter 11, or are they better off restructuring the debt at this point?"

Wachovia will probably end up with an equity stake in the company if Riviera ends up in bankruptcy, Sullivan said.

Westerman said in the statement that a restructuring would reposition the company so it could grow when the economy and the "competitive situation in Las Vegas returns to a more rational environment."

Wachovia served a notice of technical default in early March on the bank loans after Riviera Holdings refused to give Wachovia access to all of the cash in Riviera's bank accounts should the company issue a notice of default to the bank. Riviera Holding hired XRoads Solutions Group, a Santa Ana, Calif.-based corporate restructuring firm, as a financial adviser on March 25 to help the company with its bank negotiations. Riviera Holdings shares fell 45 cents, or 30.61 percent, Tuesday to close at $1.02 on the American Stock Exchange.