AT LEAST THE LAWYERS ARE GETTING RICH

The following list details the recent gaming debt restructurings and defaults. Given the significant financial leverage in the sector heading into the downturn and the material drop in cash flows, it shouldn’t be surprising that the list is long.

The list of actions taken by each debtor to avoid bankruptcy is also long, which brings us to our main point. Even though there are some other seemingly dire situations out there such as MGM, and potential covenant breachers (LVS, PNK, WYNN, BYD), there are many remedies. However dire some of these situations may be, the fact is, the banks do not want to own the assets, and will not likely foreclose on the assets, at least not anytime soon. The MGM saga is likely to drag out for some time and, meanwhile, the equity will trade like an option. The other potential covenant breachers are likely to find their banks fairly aggreeable to amendments and waivers.


SUMMARY OF GAMING RESTRUCTURING/COMPANIES IN DEFAULT
  • HARRAHS:

    December 2008 private exchange offer: selected old notes of Harrah’s Operating Co. (“HOC”) for new 10% senior secured notes due 2015 and 2018; offer closed as of December 24, 2008; reports indicate debt load reduced by $1.14 billion.

    March 2009 private exchange offer: selected old notes of HOC for up to $2.8 billion of new 10% second priority senior secured notes due 2018;

    March 2009 private cash tender offers—
    – by Harrah’s BC Inc. (sibling of HOC) for Priority 2 notes issued under March 2009 exchange offer;
    – by affiliates of Apollo and TPG for 10% senior secured notes due 2015 and 2018 issued under December 2009 exchange offer (and potentially under March 2018 exchange offer);
    – by HOC for Retail Notes held by certain holders.

    Banks and bondholders organizing, retaining restructuring professionals; high probability of chapter 11 filing in 2009.
  • STATION CASINOS:

    Private exchange offer for selected Old Notes, to refinance debt and cure looming loan defaults, terminated in December 2008 due to lack of sufficient participation.

    Retained restructuring professionals to engage in negotiations with banks and secured lender groups, resulting in modification of loan terms, contribution from sponsors and an agreement by secured lenders to support a Prepackaged Plan of Reorganization.

    Currently soliciting votes on the Prepackaged Plan, in conjunction with a second exchange offer for notes; both still pending.

    Recently, Boyd Gaming has expressed interest in purchasing Stations, reportedly for $950 million in cash, either as part of or after a Chapter 11 reorganization. To date, Stations has rejected Boyd's offer, but Boyd continues to pursue a potential acquisition.
  • TRUMP:

    Delays in asset sale and continued financing expenses for expansion:
    – Agreement on sale of Trump Marina Hotel Casino reached for $315m in May 2008 but renegotiated (lower price and waiver of financial commitment letter);
    – Scheduled May 2009 closing, but w/o financial commitment in place;
    – Planned opening of Chairman Tower to generate more cash flow, BUT additional construction required cash outlays.

    Missed $53.1m interest payment on December 1, 2008 on Senior Secured Notes due to liquidity issues. Failed to cure within 30-day grace period.

    Commenced chapter 11 bankruptcy on February 17, 2009.
  • BLACK GAMING:

    Missed coupon payment to senior secured bond holder in Jan 2009 which triggered cross-default provisions on its Senior Secured Credit Facility and Sub Notes

    Also tripped several financial covenants on its Senior Secured Credit Facility in Jan 2009, and are now in technical default

    Obtained limited forbearance with banks and bondholders, which have since expired

    Most probably outcome will involve takeout of Senior Bank Debt (only $15MM facility), equitization of significant portion of Senior Secured Bonds, and essentially “flushing” Sub Notes
  • TROPICANA:

    Breached leverage covenants in late 2007 after decline in earnings.

    Subsequent downgrades due to deteriorating financial conditions.

    Revocation of New Jersey gaming license due to inadequate operation levels, leading to EOD under loan agreements and takeover by state.

    Various attempts to resolve liquidity issues before bankruptcy:
    – Appeal of decision revoking gaming license;
    – Attempted sale of Tropicana AC to various investor groups;
    – Further downgrades and inability to cure EOD impeded out-of-court resolution.

    Retained restructuring counsel and financial advisor.

    Commenced chapter 11 bankruptcy on May 5, 2008.
    – Proposed plan of reorganization calls for senior secured debt to be converted to common stock and unsecured debt to receive warrants. Common stock and other equity interests are to be eliminated without distribution. Disclosure statement was approved in early March 2009; solicitation of votes next.
    – Case appears to be in flux/stalemate
    – Decline in earnings starting in 2007, leading to difficulty meeting financial covenants.
    – Downgrade of corporate rating and issued debt after missed loan payment in early 2008.
    – Several attempts to secure liquidity and avert bankruptcy:
    – equity infusion from sponsor group;
    – forbearance agreement with lenders until August 2008;
    – concessions sought from state on tax rate, attempted muni-bond raise;
    – high probability of chapter 11 filing in 2009, de-levering by converting secured debt to equity.
    – Retained restructuring counsel and financial advisor.
  • TWIN RIVER:

    Decline in earnings starting in 2007, leading to difficulty meeting financial covenants.
    - Downgrade of corporate rating and issued debt after missed loan payment in early 2008.
    - Several attempts to secure liquidity and avert bankruptcy:
    o equity infusion from sponsor group;
    o forbearance agreement with lenders until August 2008;
    o concessions sought from state on tax rate;
    o high probability of chapter 11 filing in 2009, de-levering by converting secured debt to equity.

    Retained restructuring counsel and financial advisor.