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Steve Green

Riviera gets notice of technical default; stock tumbles

4 March 2009

LAS VEGAS, Nevada -- Financial pressures are increasing for the owner of the Riviera hotel-casino in Las Vegas and the company's stock sunk to a 52-week low today on news that it's in technical default on a $245 million line of credit.

Riviera Holdings Corp. said it received a notice of technical default by Wachovia Bank, which administers the credit facility, because of Riviera's refusal to give Wachovia access to the operating cash in Riviera's bank accounts. The default has triggered a higher interest rate of unspecified magnitude on the debt.

The stock of Riviera Holdings, which also owns a casino in Black Hawk, Colo., fell 38 cents this morning to $1.84 on the news. It traded as high as $22.87 in March 2008 before the recession dramatically reduced visitation to Las Vegas.

Most recently, the La Cage show and the Ristorante Italiano closed at the Riviera in Las Vegas as visitation to the property decreased.

Riviera Holdings Chairman and Chief Executive William Westerman said in a statement today that the loan default is technical, not financial, as the company is current with the credit agreement's interest and payment obligations. But Riviera Holdings suggested the higher interest expenses may trigger additional problems for the company

"The company has funds on hand and is continuing to generate sufficient cash to pay all operating obligations in a timely manner, as well as make necessary investments in its Las Vegas and Black Hawk properties in order to meet minimum capital maintenance requirements,' Riviera Holdings said.

"Despite experiencing the impact of a severe economic recession, the company's objective has been to remain current with all of its financial commitments, including interest obligations associated with the Credit Agreement. That being said however, due to the increased interest burden in the form of default interest now imposed on the company as a result of this alleged technical default, the company will have to reassess this objective,' Riviera said.

Riviera said Wachovia requested that Riviera execute a cash deposit agreement that Riviera found to be unreasonable because it would enable Wachovia to access all of Riviera's operating cash and order it to be transferred to a bank account specified by Wachovia.

"Wachovia could gain access to all cash held in Riviera's bank accounts by merely advising the banks of a notice of default without first allowing us the opportunity to cure the default, no matter how trivial. Since receipt of the Oct. 14, 2008 request, we have unsuccessfully attempted to negotiate a (deposit agreement) with Wachovia that provides for adequate going concern protections for the company. We remain willing to enter into a reasonable (agreement) which would provide our lenders with access to the cash in the company's bank accounts as collateral, as long as we are able to maintain reasonable access to that cash in order to pay normal operating expenses necessary to continue business."

Rivera Holdings has not yet reported financial results for the fourth quarter of 2008. For the third quarter ended Sept. 30, the company said revenue fell 23 percent to $40.2 million and that it lost $3.5 million.