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Herbst Gaming files bankruptcy

Herbst Gaming filed a prepackaged Chapter 11 bankruptcy reorganization plan Sunday that will result in the company losing ownership of its 15 casinos but will let it retain control of its Nevada slot machine route.

In a statement, Herbst Gaming Chief Executive Officer Troy Herbst said the company had a previously negotiated agreement with a majority of its secured lenders covering $847 million in total debt. The company announced plans for the prepackaged bankruptcy on March 10.

Herbst, who owns the gaming company with his brothers, said the Chapter 11 process would allow normal operations at the company’s casinos and its slot machine routes to continue. The current management team will remain in place, employees will receive pay and benefits and suppliers will be paid on a regular basis.

“Today’s action is the most effective means to implement our debt restructuring and achieve a capital structure that fits current business conditions,” Troy Herbst said. “We are pleased to have found a solution to our burdensome debt load that allows the company to preserve jobs and ensure normal daily business operations.”

Herbst Gaming operates 15 casinos in Nevada, Iowa and Missouri and a 600-location, 6,800-machine Nevada slot route, the state’s largest. The company’s troubles began in 2007 when it spent $140 million to acquire five Northern Nevada casinos and $349 million to purchase the three Primm casinos from MGM Mirage.

The souring economy sapped consumer spending and high gasoline prices during 2008 kept Southern California casino customers from traveling north on Interstate 15 to the Primm properties in favor of neighboring Indian casinos. Also, a voter-enacted smoking ban in taverns and restaurants damaged revenues from the route operations.

The company had planned to file bankruptcy Monday, but decided to take the action a day early. Herbst filed its voluntary petitions for Chapter 11 with the U.S. Bankruptcy Court for the District of Nevada in Reno. In addition to the court, the plan needs approval of gaming regulators in Nevada, Missouri and Iowa.

“Since we already have an agreement in place on a restructuring with our secured lenders, the company expects to confirm the plan of reorganization expeditiously and without disruption to our business,” Troy Herbst said.

Under the reorganization plan, which was approved by approximately 68 percent of the company’s lenders under the company’s senior credit facility, Herbst Gaming will be divided into two separate holding companies. One holding company, owned 100 percent by the lenders, will cover the casinos. A second holding company, owned 90 percent by the Herbst brothers and 10 percent by the lenders, will cover the slot machine routes.

The plan calls for termination of all outstanding obligations under the company’s two different senior subordinated notes as well as the cancellation of all existing equity in the company.

When the company announced the agreement on March 10, Herbst Gaming General Counsel Sean Higgins said the prepackaged was the result of nearly a year's worth of discussions with the company’s lenders.

"We have been dealing with our lenders on this issue for a long time and this ends up being a good result," Higgins said. "The Herbst family will control the route and has the ability to rebuild that operation into a viable and profitable business entity."

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.

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