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Tuesday, March 10, 2009 | 7:04 p.m.
Beyond the Sun
Herbst Gaming said today it has reached an agreement with lenders to file for Chapter 11 bankruptcy protection and split the company in two, with bank lenders becoming equity owners of Herbst's casinos and the Herbst family receiving 90 percent of equity in a separate slot route company in exchange for a new gaming device license agreement.
The reorganized casino company would own 10 percent of the equity in the new slot route business.
The plan involves a prepackaged bankruptcy, in which lenders have agreed to the details of restructuring beforehand, which expedites the process in bankruptcy court. The plan would reduce debt by converting more than $847 million in bank debt into new debt and equity and canceling more than $330 million in bond obligations.
The restructuring effort will help protect employees' jobs, ensure that vendors are paid in full and allow the company to continue functioning "on a 'business as usual' basis" throughout the bankruptcy process, Herbst Chief Executive Officer Troy Herbst said in a statement. The Las Vegas company, which employs 5,400, owns 12 casinos in Nevada, two in Missouri and one in Iowa.
Lenders holding about 68 percent of the company's bank debt have approved the restructuring plan.
The company has been pummeled by a downturn that has hurt budget properties and cost-conscious consumers – the primary business at its Terrible's-brand casinos and slot machines the company operates in bars, grocery stores, gas stations and other small slots locations. Herbst began negotiations with lenders after missing debt payments last year. The effects of the economic slump were compounded by an ill-timed purchase in 2007 of Primm's three casinos, which piled on hundreds of millions in debts as earnings fell.
While the company continues to generate positive cash flow, it has "more debt than our operations can support," Herbst said.
Herbst said vendors will be paid under the same terms throughout the bankruptcy process, including vendors that supplied goods and services immediately prior to the forthcoming Chapter 11 filing.