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Auditors Concerned about Viability of Santa Fe Gaming Corp.

31 December 1999

by Gary Thompson

Santa Fe Gaming Corp. on Wednesday reported higher revenues and reduced losses for the fourth quarter and fiscal year ended Sept. 30, but its auditors expressed concerns about the struggling casino operator's future.

The company, which owns the Santa Fe hotel-casino in northwest Las Vegas and the Pioneer in Laughlin, Nev., said it posted a $7 million loss for the quarter on revenue of $31 million.

In the fiscal 1998 fourth quarter, Santa Fe lost $50.3 million on revenue of $28 million.

For the full year, Santa Fe said it lost $19.9 million on revenue of $125.6 million, compared with a $63.9 million net loss on revenue of $112.8 million in fiscal 1998.

The losses in 1998's fourth quarter and full year included a $44 million impairment loss. Santa Fe said the loss was due to the likelihood of increased slot play at California Indian casinos as a result of 1998 legislative and voter actions. They could cut Pioneer's cash flow enough to make it unable "to recover the carrying value of the company's investment."

For the 1999 periods, the company incurred $2.4 million of reorganization expenses connected with Chapter 11 bankruptcy filings by its Pioneer Hotel Inc. and Pioneer Financing Corp. subsidiaries.

The filings came after Pioneer Finance failed to make a $60 million balloon payment on junk bonds issued in 1988. Pioneer Finance wants to exchange the old bonds for a new issue due in 2006.

But in the Wednesday announcement disclosing its latest financial results, Santa Fe said its auditors believe "the company's inability to meet the repayment terms of (Pioneer Finance's) 13.5 percent notes, its net losses and its stockholders' deficiency raise substantial doubt about its ability to continue as a going concern."

Santa Fe Gaming has experienced losses for years, staggering under the high interest rates associated with the junk bonds it issued in the 1980s.

The warning comes despite last month's sale of a 40-acre parcel in Henderson to Station Casinos Inc., which also acquired an option to buy the 38-acre Santa Fe hotel-casino site in Las Vegas.

Santa Fe's announcement said the company expects to report a pre-tax gain of about $12.9 million on the sale for the Dec. 31 quarter, the first three months of its 2000 fiscal year.

In recent days, rumors have spread among Santa Fe employees that Station might exercise its option to buy the property as early as next month. Station Casinos dominates the locals gaming market with four major properties -- Palace, Texas, Boulder and Sunset Station -- in strategic spots around the valley.

The Santa Fe hotel-casino lies just east of U.S. 95 in the northwest part of Las Vegas that is experiencing rapid population growth.

A Station executive contacted earlier this week said he had no information about whether that company has decided to buy the property. Santa Fe executives couldn't be reached for comment Thursday.

The announcement also said the company's Sahara Las Vegas Corp. subsidiary, which had owned the undeveloped land in Henderson, has extended the maturity date of notes that were due Dec. 15 to Dec. 14, 2000. The notes carry an interest rate of 12 percent annually, Santa Fe said.

Santa Fe stock closed at 66 cents a share Thursday, up 6 cents.

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