Herbst Gaming reports profit increase amid cost-cutting efforts

By Steve Green

Wednesday, Nov. 17, 2010 | 9:28 a.m.

Thanks to cost cutting, casino and slot route operator Herbst Gaming Inc. of Las Vegas increased its profit in the third quarter even as business remained slow because of the recession.

Herbst is emerging from its March 2009 bankruptcy that will eliminate all but $350 million of its $1.1 billion in long-term debt, and will see lenders take control of the company by converting debt into equity.

The company said in a regulatory filing this week that net revenue in the third quarter fell from $169 million to $161 million.

The company's profit, however, increased from $385,000 to $3.3 million on a year-to-year basis thanks in part to a $9 million reduction in operating expenses. Casino payrolls, for instance, fell $3.4 million because of layoffs in the fourth quarter of 2009.

Because it's in bankruptcy, Herbst has been able to report profits because it hasn't been making debt payments that otherwise would have totaled more than $32 million per quarter.

Herbst has hotel-casinos or casinos in Las Vegas, Primm south of Las Vegas on the California border, Henderson, Searchlight, Pahrump, Reno, Sparks, Verdi and Dayton, Nev. The company also has a casino in Iowa and two casinos in Missouri.

Its slot route operation in Nevada includes about 6,100 gaming machines at locations such as stores and bars. Quarterly revenue from this division fell 10 percent on a year-over-year basis to $42.9 million.

"This decrease was due primarily to the continued general economic weakness in Nevada," Herbst said in this week's report.

The number of slots in its routes fell by about 200 year-to-year, as slots were removed from underperforming locations while some of the stores and bars closed due to the recession.

Herbst hopes to complete the bankruptcy process by February, though an appeal by bondholders to approval of its reorganization plan could complicate its emergence, Herbst said in this week's filing.

Bondholders standing to lose $362 million charged in a bankruptcy court lawsuit last year that dubious acquisitions by Herbst -- made just before the recession struck the nation in 2008 -- doomed the company to failure.

They alleged that because of those decisions, secured lenders should see their recovery reduced by $549 million and that the unsecured bondholders should receive at least $153.7 million.

The bondholders' arguments were rejected by Bankruptcy Judge Gregg Zive, but they appealed and that appeal is pending.