Riviera Holdings Corp. reports technical default on $245 million loan

Riviera Holdings Corp. (RIV) 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 into a deal under terms set by the bank, according to a Wednesday filing with the Securities and Exchange Commission.

The terms of the agreement, 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 Riviera Holdings to deposit its cash flow into an account controlled by the bank before the company uses the money for regular operating expenses, protecting the bank's position.

William Westerman, company chairman and chief executive officer, said in a statement that Riviera Holdings 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.

The 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 might change, however, because of the higher interest rate, 8.5 percent up from 7.5 percent, that will be imposed because of the default, the filing states.

Barbara Cappaert, a bond analyst with KDP Investment Advisors, said in a note to investors that the bank wants control of Riviera Holdings' cash before the company pulls 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 revolver, 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 who default on loans loose access to outstanding credit lines.

Station Casinos pulled down the $257 million its credit line in December, then announced a planned restructuring in February.

Harrah's Entertainment last month said it was drawing the remaining $740 million on its credit line, a move analysts said could foreshadow a bankruptcy filing.

Cappaert expressed concern that the discussions between the company and the bank were not publicly disclosed in November when the gaming company reporting third-quarter earnings.

The market appeared to react negatively to the news.

The company's shares ended the day down 31 cents or 13.96 percent to $1.91 on the American Stock Exchange.

The company, which owns the Riviera on the Strip and a casino in Black Hawk, Colo., has enough cash on hand to fund operations and maintain capital expenditures at the two properties, Westerman emphasized.

Riviera Holdings has yet to release fourth-quarter earnings, but posted a net income of $826,000 in the first nine months of last year.

Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or 702-477-3893.