Monday, July 26, 1999 | 11:18 a.m.
Fitzgeralds Gaming Corp. of Las Vegas has defaulted on $205 million in bonds, and now says it is likely to declare bankruptcy.
The default occurred on July 15, 30 days after an interest payment on the bonds was due. Fitzgeralds announced in May that it "would not be in the best interest of the company" to make the $12.5 million interest payment, and said it was trying to negotiate an agreement with bondholders.
The senior secured bonds, due 2004, pay an interest rate of 12.25 percent.
A majority of those bondholders have formed a committee to consider their options. Fitzgeralds said it will pay for a financial adviser and legal counsel for the committee. The company is negotiating with the committee to restructure the debt.
Michael McPherson, Fitzgeralds senior vice president and chief financial officer, was traveling and unavailable for comment Thursday.
The restructuring plan put forth by Fitzgeralds involves the declaration of bankruptcy while pouring $30 million into its Colorado and Mississippi properties. Those expansions would add $15 million in debt. It says debt restructuring is the only way the company can survive in the face of rising competition in all of its markets.
Fitzgeralds currently has $212.5 million in debt. It has an accumulated deficit of $83 million.
The company said the plan is only an "initial proposal," and says it is likely to change as negotiations progress.
In the restructuring plan proposed to bondholders, Fitzgeralds would exchange the $205 million in defaulted bonds for $110 million in new bonds, immediately reducing its debt load by nearly $100 million. The notes would pay 11 percent interest beginning in May 2000, and would come due in 2005. Holders of the notes would receive a 95 percent equity stake in the company.
Fitzgeralds has never revealed the identity of its bondholders.
The 1997 bonds were floated to replace older bonds that came due that year. Those bonds paid an interest rate of 13 percent.
In order to move ahead with its plan, Fitzgeralds said it would probably have to file for Chapter 11 bankruptcy, which involves reorganization. The plan would then have to be approved by a bankruptcy judge.
Once its debt load is lowered, Fitzgeralds said it will move forward with the expansion of its casinos in Tunica, Miss. and Black Hawk, Colo. The plan calls for adding 200 machines, 200 new parking spaces and new land to the Black Hawk casino by 2000, at a cost of $12.7 million. At Tunica, Fitzgeralds plans to add 300 machines, replace 200 more machines, convert a 400-space parking garage and improve its restaurants. About $15 million of these costs will come from cash flow and cash on hand, Fitzgeralds said, while the rest will be additional debt.
The expansions are necessary to keep up with increasing competition in Colorado and Mississippi, Fitzgeralds said. The company also noted its downtown Las Vegas casino is being hurt by continuing expansions here, including the openings of Bellagio, Mandalay Bay and the Venetian.
The expansion of massive resorts on the Strip has hurt other smaller operators as well. Over the past several years, the Riviera, Four Queens, Stratosphere and Arizona Charlie's declared bankruptcy.
The plan also calls for management to receive warrants for up to 30 percent of the company's stock, subject to the company's future financial performance. Management would be eligible to receive 5 percent of the company if cash flow reached $33 million by 2002. Management could receive up to 30 percent if cash flow reaches $45 million by March 2004.