Riviera misses interest payment, warns of possible bankruptcy

By Steve Green

Published Tuesday, March 31, 2009 | 9:08 a.m.

Updated Tuesday, March 31, 2009 | 4:22 p.m.

The stock of Riviera Holdings Corp., owner of the Riviera hotel-casino in Las Vegas, fell 31 percent Tuesday after the company said it chose not to make an interest payment on its debt and warned it may need to file for bankruptcy protection.

The company, which at year-end employed the equivalent of 1,137 people at its property on the Las Vegas Strip, also said the recession continued to hurt its business as it lost $12.7 million, or $1.02 per share, in the fourth quarter of 2008. That compares to a loss in the 2007 fourth quarter of $6.1 million or 50 cents per share. Revenue fell from $47 million in the 2007 quarter to $36 million in the 2008 quarter. Because of the declining revenue, Riviera has worked to cut costs and it idled one of its four restaurants in February.

Riviera, which has 2,075 rooms and suites, 900 slot machines and table games at its Las Vegas property, saw its stock tumble 45 cents to $1.02 on the news Tuesday.

Complicating matters for Riviera, the company warned its stock could be delisted from the NYSE Amex exchange if it continues to trade below $1.20 -- a development that could hurt the value of the stock by reducing its marketability and liquidity. Riviera stock traded as high as $39.12 in 2007, but has been devastated by the recession and the company's financial troubles.

Riviera also has a casino in Black Hawk, Colo., 40 minutes from Denver with the equivalent of about 200 employees. It has about 800 slot machines and six table games.

In a statement this morning, Riviera said it did not pay about $4 million in interest due on Monday for its $245 million in debt. The company is in default on its debt covenant and now must pay a higher interest rate because of its refusal to give Wachovia Bank, the agent for the lenders, control of its cash through a Deposit Account Control Agreement. Riviera argued that agreement would be too restrictive. Additional notices of default are likely now that Riviera has chosen not to make the $4 million payment.

Riviera, which has hired XRoads Solution Group LLC as its financial advisor, said it determined not to make the $4 million payment based on an analysis of its current and projected liquidity.

Riviera said it's in discussions with Wachovia about the debt as well as Riviera's disclosure that there's a substantial doubt about its ability to operate as a going concern.

"We cannot assure you that we would be successful in completing a refinancing or consensual out-of-court restructuring, if necessary. If we were unable to do so, we would likely be compelled to seek protection under Chapter 11 of the U. S. Bankruptcy Code,'' Riviera said.

"The decision not to pay our accrued interest was both difficult and unpleasant. We have always prided ourselves on paying all our obligations on a timely basis. However, in view of the continuing devastating competitive pressure on room rates, the rapidly depreciating convention attendance in the Las Vegas market, and the input of our financial advisor, we determined it was imperative and in the best interests of our company to maximize our liquidity by retaining the funds that would have been employed to pay the first quarter interest,'' William L. Westerman, chairman and chief executive, said in a statement.

"Both our Las Vegas and Black Hawk properties are generating positive free cash flow and this, combined with our cash balances, will help ensure that we continue to pay all our operating costs on a timely basis and fund maintenance capital expenditures. There will be no effect on our team members, vendors and most importantly, our customers,'' he said. ``Our lenders and the company are well aware of the necessity of resolving this situation in an expeditious manner to preserve the long-term viability and value of the company. Our immediate priority is to address our untenable capital structure with our lenders and Wachovia with the goal of achieving a solution that either avoids the necessity for Chapter 11 proceedings or that results in a pre-negotiated plan of reorganization, which would be confirmed through voluntary Chapter 11 proceedings.''

"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. We expect this situation to continue as long as competitors in the Las Vegas market follow a strategy of sacrificing ADR (average daily room rate) to maximize room occupancy and the decline in convention business is unabated. In spite of this pessimistic outlook, we are confident that we will maintain sufficient cash flow to meet our operating obligations and maintain our properties. We expect to emerge through a restructuring with a capital structure which will enable the company not only to survive, but to grow as the economy recovers and the competitive situation in Las Vegas returns to a more rational environment," he said.