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Black Gaming filing for Chapter 11 bankruptcy reorganization

Updated Wednesday, Dec. 23, 2009 | 6:42 p.m.

An investment group including South Point hotel-casino owner Michael Gaughan, the Toti family and Randy Black Sr. would control Mesquite hotel-casino operator Black Gaming under a pre-packaged bankruptcy plan for Black Gaming announced on Wednesday.

Pounded by the recession and in default on its $206 million in debt, Black Gaming LLC today announced it is filing for Chapter 11 bankruptcy reorganization after entering into a “lockup agreement” with the holders of approximately 70 percent of the company’s $125 million in senior secured notes.

The lockup agreement allows for the restructuring of Black Gaming’s debt and provides for an investment of capital into the company.

It wasn’t clear if the bankruptcy petition was actually filed on Wednesday, and Black Gaming officials could not immediately be reached for comment.

Creditors, including holders of $66 million in subordinated bonds not part of the lockup agreement, have not yet weighed in on the plan.

All operations of the company will continue under current management throughout the restructuring process, including payments to vendors, under normal trade terms without interruption, the company said.

Black Gaming has the CasaBlanca, Oasis and Virgin River hotel-casinos in Mesquite, 80 miles northeast of Las Vegas.

With operations suspended at the Oasis because of the recession, Black has reported its properties control about 55 percent of the Mesquite gaming market. They have 1,500 slot machines, 40 table games and 2,100 hotel rooms. The Oasis has 900 rooms used for overflow periods.

In Business Television, an affiliate of the Las Vegas Sun and In Business Las Vegas publications, first reported on Dec. 11 that Gaughan was interested in investing in Black Gaming.

At the time, Gaughan said his longtime partner, Franklin Toti, was in talks with Black Gaming.

Black Gaming today said investors in the newly organized company would be Gaughan, Randy Black Sr., currently Black Gaming’s majority owner, and Anthony Toti.

Anthony Toti, Franklin Toti’s son, is Black Gaming’s chief operating officer and is a former executive with Coast Casinos Inc.

Franklin Toti was a director and vice president of casino operations at Gaughan’s Coast Casinos before Coast was acquired by Boyd Gaming Corp. in a deal completed in 2004. Franklin Toti is now an executive at the South Point.

“Our company is generating positive EBITDA (earnings before interest, taxes, depreciation and amortization), despite the challenging economy. Our problem is one of leverage; we have more debt than our operations can support. Our agreement with our lenders is designed to resolve this by restructuring our debt to a level our operations can sustain and to provide additional capital,” Black Sr. said in a statement.

Black Gaming said the prepackaged bankruptcy calls for:

• Debt owed to Wells Fargo Foothill Inc., last reported at $14.8 million, would be paid in full.

• Senior secured noteholders owed $125 million would exchange their notes and claims for a new credit facility of $62.5 million and, at their option, either a cash payment or an equity interest of up to 6 percent in the reorganized Black Gaming.

• The company’s senior subordinated noteholders owed $66 million would receive warrants to buy equity interests in the reorganized company in exchange for their notes and claims.

• General unsecured claims, such as those from trade vendors, would be paid in cash.

• Anthony Toti, Black Sr., a Texas company called Newport Global Advisors LP and “one or more parties to be designated by Michael Gaughan” would invest more than $17 million for a 94 percent equity stake in the reorganized company.

• Black Sr. will remain chief executive, Anthony Toti will remain chief operating officer and Sean McKay will remain chief financial officer.

“We are extremely pleased that we could come to an agreement with our lenders. In this difficult economy, gaming has been hit hard, and our company was no exception. We are one of the few gaming companies that has been able to reach a mutual compromise with our lenders, and it is my belief that we reached this agreement due to the strength and positioning of our properties and the experience of our management team and its employees,” Black Sr. said in the statement. “We believe this agreement will pave the way for our company to emerge stronger, with less debt and with a team of management and employees ready to guide our hotel-casino resorts into the future. We have worked out high-level plans to improve our operations and have enlisted some tremendous support.”

Black Gaming last publicly reported results for the quarter ending June 30, when it said revenue was $27.3 million, down from $36 million in the year-ago.

The company lost $4.8 million in the 2009 quarter, an improvement from the $20.3 million lost in the year-ago quarter.

Besides the Toti family ties between the South Point and the Black Gaming properties, the South Point’s sports book runs — under a pool arrangement — the Black Gaming properties’ sports books.

The South Point sports book — under the pool arrangement — also runs other Las Vegas-area sports books at the El Cortez, the Palms and Cannery Casino Resorts’ Rampart Casino and its two Cannery casinos.

The Black Gaming bankruptcy brings to four the number of bankruptcies involving big Southern Nevada gaming companies this year. Filing earlier were Herbst Gaming, the Fontainebleau development and Station Casinos.

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