Familiar faces stay despite overhauls

The near financial collapse of several Las Vegas-based gaming companies didn't shake the system.

Gaming revenues in the Las Vegas locals market have spiraled downward some 15 percent since 2008, pushed by the recession, record unemployment, a declining housing market and the diminished construction industry.

The lost business compounded the already shaky corporate financial structures that several casino operators brought upon themselves through leveraged buyouts, development projects or other ill-timed decisions.

Creditors and banks, however, didn't want to run the casinos.

For the most part, debt was restructured and financing was acquired. Management, however, remained in place.

That's why it's not shocking that George Maloof will continue to operate the Palms.

Maloof's ownership in the 1,300-room off-Strip hotel-casino will drop from 85 percent to 2 percent once gaming regulators approve a restructuring of $400 million in debt. The casino's creditors, investment firms TPG Capital and Leonard Green & Partners, will each own 49 percent of the property.

Without Maloof's marketing skills and vision, the Palms is just another attractive Las Vegas casino. The private equity firms are banking on Maloof keeping the Palms on track while the economy recovers.

The same scenario holds true for Station Casinos. The company emerged from bankruptcy last month largely intact.

Creditors had ample opportunity through bankruptcy to dump the founding Fertitta family and break up the 18-casino company. Boyd Gaming Corp. stood ready to acquire all or part of Station Casinos during the restructuring proceedings. Regional gaming operator Isle of Capri Casinos was prepared to manage several of the company's resorts on behalf of the lenders.

In the end, the banks and unsecured bondholders decided to stick with brothers Frank Fertitta III and Lorenzo Fertitta and their existing management.

The Fertittas put $200 million into the deal and own 45 percent of the new company, their largest stake ever. When Station Casinos was publicly traded, the Fertittas held 9.9 percent. Following a $5.4 billion deal to go private in November 2007, the Fertittas had 25 percent.

But the brothers are not in control. It's presumed Deustche Bank AG (25 percent), JP Morgan Chase & Co. (15 percent) and the former bondholders (15 percent) would vote as a bloc on any matter.

The lenders forgave $4 billion of the company's previous $6 billion in debt through restructuring. So it's likely they have the Fertittas on a leash. How long or short is anyone's guess.

The lenders are wagering that the Fertittas and their management team will do what they have done best -- operate the casinos. Before the economy fell apart, the Fertittas were known as decent managers.

That's what the debtholders want to see again, which is why Southern Nevadans have been inundated with the company's "We Love Locals" advertising campaign and a hefty promotional environment. Station Casinos is trying to win back the love of the consumer.

Same with M Resort.

Anthony Marnell III and his family spent close to $1 billion to build M Resort, opening the stylish property during the heart of the recession. The first few months -- helped by a heavy promotional effort -- provided a false sense of security.

Penn National Gaming bought M Resort's $860 million in debt for $230.5 million, a nearly 75 percent discount, less than two years after the resort opened.

At first, it seemed Marnell was out of the picture. Penn executives, however, liked the way he ran the property and gave him a reported five-year deal to serve as the casino's president. Marnell told Nevada gaming regulators he was negotiating with the company for an equity position in M Resort.

Herbst Gaming is the only troubled company that didn't follow the model.

The Herbst brothers, facing $1.15 billion in debt, proposed keeping 90 percent of their slot machine route business while giving creditors 100 percent of the company's casinos. The noteholders objected and the bankruptcy court approved a reorganization that gave senior lenders control of the entire company. The brothers were removed and Herbst Gaming is now Affinity Gaming.

Recently, family patriarch Jerry Herbst formed a slot machine route business -- JETT Gaming -- with the idea of reclaiming the slot machine operations at his company's Terrible Herbst convenience stores.

The more things change, the more they stay the same.

Howard Stutz's Inside Gaming column appears Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. He blogs at lvrj.com/blogs/stutz. Follow @howardstutz on Twitter.