Friday, May 23, 2008 | 2 a.m.
Herbst Gaming reached an agreement with lenders this month that buys the company more time to work out a deal with them and potentially avoid bankruptcy court despite the company’s worsening finances.
The agreement includes suspending payments on bond debt until Sept. 30. Most of the company’s $1.1 billion in debt is in bank loans, which carry less risk than corporate bonds.
“I think these are cordial negotiations” with lenders, Wachovia Capital Markets bond analyst Dennis Farrell said. “The family has built up a lot of good will in Las Vegas and with their lenders. It’s just a matter of coming to an agreement on how to lower the debt burden.”
The company’s slot route and small casino business benefited for many years from Las Vegas’ population growth but is now feeling the brunt of the slowdown, as Herbst caters to budget-conscious customers who are more affected by a downturn, Farrell said.
Herbst had $16.5 million in losses in the first quarter due to higher gas costs and the economic slowdown, with slot route operating profit down 6 percent in the first quarter compared with a year ago and the company’s casino business down 5 percent over the same period.
The Primm casinos, dependent on budget travelers hurt by the high cost of gas in Southern California, generated a dismal $300,000 in operating profit in the first quarter. Little more than a year ago the three properties generated an annual operating profit of roughly $40 million, and under previous owner MGM Mirage the casinos earned more than $70 million several years ago, when times were good and tribal casinos were in their infancy.
Lackluster demand for condominiums and condominium hotels hasn’t deterred Fontainebleau Resorts from forging ahead with sales of condo-hotel units at its Fontainebleau Las Vegas resort on the Strip.
In fact, Fontainebleau partner Turnberry Associates, a veteran of South Florida’s roller-coaster condo market, says the lull in condo construction and demand will weed out more speculative projects, benefiting condo owners longer term.
“This is part of the boom and bust in real estate,” said Bruce Weiner, president and chief operating officer of Turnberry Associates. “Las Vegas is having a slowdown this year but I’d rather own in Las Vegas than in, say, Peoria, Ill. In the long run, people who stay the course will be fine.”
The property, which snagged financing before the markets soured, hopes to open a multimillion-dollar sales center by September, luring wealthy customers who will appreciate the property’s architectural details and hip amenities.
CityCenter President and Chief Executive Bobby Baldwin has a lavish, garden-fronted office at MGM Mirage’s corporate headquarters at the Bellagio. But he spends most of his time these days at an office building behind the New York-New York housing about 500 designers, architects and planners working on CityCenter.
By day, when he’s not in that office, Baldwin, in his hard hat and bright yellow construction vest, is on the nearby construction site.
By night, Baldwin enjoys a more relaxed view of the job site from his condo at Panorama Towers. It is across Interstate 15 and offers a direct view of CityCenter.
From there he can hear the 24-hour hum of cranes, trucks and clanking building materials. Noises that might be distracting to other residents no doubt bring some comfort to Baldwin, who gets up in the middle of the night to watch CityCenter rise from the darkness.