Riviera Holdings Corp. moved a step closer to financial upheaval Wednesday because of a dispute with its lender over who will control the company’s bank accounts.
Riviera Holdings Corp. received a notice of technical default from Wachovia Bank on $245 million in bank loans after the company refused to enter a deal under terms set by the bank, a filing Wednesday with the Securities and Exchange Commission shows.
The deal, called a deposit account control agreement, would have given Wachovia access to all of the cash in Riviera’s bank accounts should the company issue a notice of default to the bank. The bank wants to protect its position by having Riviera Holdings deposit its cash flow into a bank-controlled account before using it for operating expenses.
Riviera Holdings Chairman and Chief Executive Officer William Westerman said in a statement that his company has been working with the bank since October on an agreement that would protect the company’s access to cash.
“We remain willing to enter into a reasonable (agreement) which would provide our lenders with access to the cash in the company’s bank accounts as collateral, as long as we are able to maintain reasonable access to that cash in order to pay normal operating expenses necessary to continue business,” Westerman said.
Technical default is not a financial default, and the company remains current on all its financial commitments including interest payments on the credit agreement, the filing shows.
That may change, however, due to the higher interest rate, 8.5 percent up from 7.5 percent, that will be imposed because of the default, the filing stated.
KDP Investment Advisors bond analyst Barbara Cappaert said in a note to investors that the bank wants control of Riviera Holdings’ cash in case the company draws down the remainder of its $20 million credit line.
“We could see Riviera do as others have done, pull down the remaining $17.5 million on its (revolving credit line), giving the bank even more exposure to Riviera and the gaming sector and a potentially troublesome loan,” Cappaert wrote. “We think this is the reason for more stringent cash account requirements.”
Businesses that default on loans lose access to outstanding credit lines.
Cappaert expressed concern that the discussions between the company and the bank were not publicly disclosed in November when the gaming company reported third-quarter earnings.
The company’s shares closed at $1.91 per share Wednesday, a drop of 31 cents, or 13.96 percent, on the American Stock Exchange.
Contact reporter Arnold M. Knightly at firstname.lastname@example.org or 702-477-3893.