Vol. 7 • No. 12 • April 6, 2009 - Print This Issue
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Vol. 7 • No. 12 • April 6, 2009, Cover Stories
Downturn Hits Large and Small Players
Like their larger cousins, a number of smaller casino operators in Las Vegas are facing bankruptcy as they struggle to deal with the prolonged recession, including Stratosphere (l.), Riviera and Hooters.
GAMING IMPACT STATEMENT
WHAT: Financial crisis
WHERE: Las Vegas
WHY: Like their more famous and much larger colleagues, several small gaming companies are facing bankruptcy.
Heretofore, it has been the gaming giants that seemed to be at the greatest risk of bankruptcy because of the prolonged recession, but a number of smaller operators have recently made comments suggesting that they, too, are really feeling the economic pinch.
While the conventional wisdom was that companies that went private a couple years back are primarily struggling because of the huge amounts of debt undertaken in going private, or that missteps like building a $9 billion mega resort were hurting bottom lines, the latest news suggests that there is more at play than simply debt loads. The announcements suggest that the simple drop in visitation and the drop in expenditures are hurting casinos throughout Nevada.
While this was certainly taken into consideration, the consensus seemed to be that the smaller companies with less overhead and less debt would be better positioned to survive a prolonged recession. But with three companies now added to the list of likely to file for bankruptcy, a growing problem can be seen with the state’s primary industry.
Joining Harrah’s, MGM Mirage and Station Casinos as possible bankruptcy candidates (not to mention companies like Tropicana Entertainment LLC and Terrible Herbst which already filed) are Riviera Holdings, American Casino and Entertainment Properties, and Hooters casino owner 155 East Tropicana LLC.
ACEP Troubles
American Casino and Entertainment Properties, parent company of the Stratosphere and Arizona Charlie’s casinos in Las Vegas as well as the Aquarius in Laughlin, posted a revenue decline of 4.5 percent in 2008, according to a filing with the Securities and Exchange Commission.
"As of November 1, 2008, we performed impairment tests that resulted in non-cash write-downs of our goodwill and trade names of approximately $8.2 million at the Stratosphere, approximately $2.4 million at Arizona Charlie’s Decatur, $1.2 million at Arizona Charlie’s Boulder and approximately $182,000 at the Aquarius. As of December 31, 2008, we wrote off 100 percent of our goodwill,'' the company said in its annual report. "The impairment of these assets was due primarily to our decrease in revenues and resulting decrease in income from our properties, which was an indication that these assets may not be recoverable. We believe the declines in our revenue and income are related to the on-going economic recession in the U.S. and Southern Nevada economies, which has caused us to reduce our estimates for projected cash flows, has reduced overall industry valuations and has caused an increase in discount rates in the credit and equity markets.''
Whitehall Street Real Estate Funds, an affiliate of Goldman Sachs, purchased the company from Car Ichan in February for $1.2 billion. The company has posted a new loss of $31 million since that deal closed, attributed to $62.5 million in interest payments connected to a $1.1 billion loan issued to finance the buyout.
Whitehall replaced a number of executive officers, including former president and CEO Richard Brown, who had overseen ACEP since 2002.
ACEP saw an 8 percent drop in hotel revenue in 2008 and a 3.3 percent drop in casino revenue. The company reduced staffing levels from 5,300 employees to 5,000 employees in 2007.
Riviera facing bankruptcy
Riviera Holdings Corp. announced last week that it missed a $4 million interest payment. The parent company of the Riviera casino in Las Vegas-and owner of a casino in Colorado-said it did not make the payment on its $245 million credit facility with Wachovia Bank, and it does not plan to do so.
Riviera Holdings Chief Executive Officer William Westerman said the company decided against making the payment so it could maintain liquidity.
Westerman said lower room rates and a decline in convention business has hurt the company’s revenue, but noted that he is "confident that we will maintain sufficient cash flow to meet our operating obligations and maintain our properties."
With hotels throughout Las Vegas slashing room rates, discount rooms like those at the Riviera are attracting less business. Last year, hotel revenue fell by more than 12 percent while occupancy rates dropped to a low 83.8 percent occupancy rate.
The company also reported a fourth-quarter loss of $12.7 million and a yearly drop in revenue 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 company said in a statement that it would like to negotiate a new bank agreement outside of bankruptcy court, but, "If we were unable to do so, we would likely be compelled to seek protection under Chapter 11 of the U. S. Bankruptcy Code."
Hooters misses payment
155 East Tropicana LLC, operator of the Hooters hotel-casino in Las Vegas, announced that it will miss an interest payment on its senior notes and that it might require Chapter 11 bankruptcy protection.
“Based on our anticipated future operations, we do not believe that cash on hand and expected cash flows will be adequate to meet our anticipated operational expenses, debt service on equipment leases and Credit Facility, capital expenses, and scheduled payments of interest on our notes. As a result, we will be unable to make the interest payment on the notes due April 1, 2009,” the company said in a filing with the Securities and Exchange Commission today.
Note holders can now claim default after a 30-day grace period expires. The company hopes to start negotiating forbearance agreements with note holders and lenders. If it can’t do so, it expects to need bankruptcy protection.
Like the others, 155 East Tropicana reported an operating loss last year. Net operating revenues for 2008 were $60.1 million, compared to $66.5 million in 2007.
The Hooters casino has been struggling since it opened, and 155 East Tropicana has been trying to unload the property for several years now. While there were a number of interested buyers, nothing ever materialized.
Station continues to struggle
Trouble continues, however for the large companies as well. Station Casinos reported a fourth quarter net loss of $3.2 billion while revenue fell 19 percent to $289.8 million.
The company reported $3.39 billion in write-downs and other charges, which included a $3.34 billion write-down in the value of company assets in light of lower earning projections.
Net revenue for the company's Las Vegas casinos, except Green Valley Ranch, fell 20 percent to $262.3 million in the fourth quarter. Those properties posted a combined net loss of $1.2 billion.
At Green Valley Ranch, the only property to report earnings, the adjusted earnings were down 45 percent compared to 2007. The property reported a net loss of $23.2 million in the fourth quarter alone.
Overall, the company’s casino revenue fell 11 percent, food and beverage revenue fell 8 percent and room revenue fell 6 percent in 2008.
Station Casinos is currently talking with lenders about a prepackaged bankruptcy plan that expires April 10. The company has missed two interest payments, and has a forbearance that expires April 15.
The prepackaged deal could reduce the company’s debt by billions. That deal is being challenged by one bondholder who says the deal unfairly subordinates his holdings.
That case is currently in court. Station Casinos says the complaint is not valid, and that preventing the prepackaged deal from moving forward if there is sufficient support from lenders would be devastating to the company and the community because of the number of people Station Casinos employs.
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