Riviera Holdings Corp. will be the latest casino company to turn over the keys to its lenders following Monday’s approval of its Chapter 11 reorganization plan by U.S. Bankruptcy Court Judge Linda Riegle.
The terms call for replacing about $280 million in debt with a new $50 million loan and meting out the company’s stock to creditors in proportion to how much they are owed. The current stockholders of the publicly held Riviera Holdings would be wiped out, although shares will continue to trade. They closed Monday on the Pink Sheets at 5 cents each.
In addition, the new owners will kick in $10 million as working capital and fund another $20 million in loans to cover long-term investments in the property, one of the grande dames of the Strip. Since the Riviera defaulted on its loans two years ago, spending has been limited to basic maintenance with nothing going to renovations or upgrades.
Greenwich, Conn.-based Starwood Capital Group now holds 41 percent of the company’s debt, Riviera Executive Vice President Tullio Marchionne said, with another 10 percent held by Desert Rock Enterprises, the majority owner of the Golden Gate.
Starwood Chairman Barry Sternlicht has been named the new chairman of Riviera Holdings. He will take over once the legal and financial mechanics of reorganization have been completed. Andrew Choy, an executive at The Venetian in Las Vegas and Macau for two years, will take over as CEO.
The formal completion of the deal, known in bankruptcy law as consummation, normally takes only a few weeks once a judge signs the order. But Marchionne said Riviera’s new owners will likely wait until spring while Sternlicht obtains a gaming license.
Starwood has been on the Strip before as the one-time owner of Caesars Palace, but must go before the Nevada Gaming Commission again.
“Until then, we will continue to operate as we have been,” Marchionne said.
Because the Riviera has consistently produced positive cash flow before debt service, it should not run short of money before the change of control.
A Starwood spokesman declined to comment on his company’s plans.
However, the financial projections included in the bankruptcy papers project a gradual recovery. The company, which also owns the Riviera Black Hawk Casino in Colorado, expects to post losses before extraordinary items until 2015. But it also shows revenues after promotional allowances rising 23 percent over a five-year span from $138.1 million this year and gross profits increasing 32 percent during the same time.
Whatever may happen with the property, the Riviera cannot do much about its neighborhood.
“One of the primary challenges the Riviera Las Vegas faces is its increasing isolation given the recent changes on the north end of the Strip,” according to the bankruptcy plan.
The north Strip, once the heart of the casino industry, is now dotted with empty lots, partly finished resorts, low-end shops and properties that were in their primes a quarter century ago. Not only has this deterred the walk-in traffic that was an important part of the resort’s customer base, but it has made it hard to raise rates enough for the Riviera to reach beyond what it terms the “midlevel budget market.”
The Riviera, first opened in 1955, expanded in stages to encompass 2,075 rooms, more than 800 slot machines and 160,000 square feet of convention and banquet space. During the boom earlier in the decade, it received several takeover feelers from people, including Sternlicht, who sought the 26.2-acre tract in what seemed to be a desirable part of the Strip for redevelopment. In June 2007, the company’s stock price crested at $39 a share.
However, none of the deals ever proceeded and planned projects surrounding the Riviera were either halted before completion or never made it past renderings. By last year, Riviera Holdings’ stock price had fallen below $1.
Contact reporter Tim O’Reiley at
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