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Posted At : March 16, 2009 03:38 PM | Posted By : D McKee
Related Categories:
Wall Street,Harrah's,Herbst Gaming
Even if Harrah's Entertainment crashes and burns (read: files bankruptcy), never fear: LBO monarchs Texas Pacific and Apollo Management will still be calling the shots. There's a lovely thought; the very guys who drove Harrah's pell-mell into the ditch -- eradicating literally billions of dollars from the balance sheets -- will retain an iron grip upon the steering wheel.
Another delighted Harrah's bondholder.
Is this what private equity has come to? Run up insupportable debts, make bondholders take a Yul Brynner haircut, and waltz away with the physical assets for pennies on the dollar? The nicest word I can think of for that scenario is "irresponsible."
The house loses: The Herbst family won't even get to keep its anchor casino on Flamingo Road under the terms of a settlement announced last week. Herbst Gaming is trying to spin it as a "win" that it's keeping it slot routes. Too bad Herbst can't have it both ways, as the company's blamed the effects of Nevada's newish smoking restrictions (and thus a decline in slot-route revenues) for much of the company's misfortunes -- something I've been hearing from inside Herbst, too.
If the bondholders are carting off the 15 Herbst casinos, it's because that's where the real money is to be made (even if it was colossally dumb of Herbst to pay nearly $350 million -- a mind-blowing 11.6X cash flow -- for a trio of run-down Primm Valley casinos).* If the slot routes are the golden goose the Herbsts now wish us to believe, no way the family would get to keep them. After all, it's the route revenues which have fallen at a steeper rate than the casino ones.
* -- even after a $67 million "goodwill" writedown, Herbst still paid a taken-to-the-cleaners 9.4X EBITDA for the Primm trio.
At least there's good news via the grapevine -- a rumor making the rounds that CEO Ferenc Szony will be staying with the casino portfolio, running the show on behalf of the creditors. Szony was brought in as Mr. Fix-It after the Herbst Brothers dug the company into an enormous hole. From what I've seen out there at Primm, he's making quite a push-back effort, even if neither the condition of the properties themselves nor Herbst's cash flows gives him the ammo he really needs. If Szony indeed gets that vote of confidence, it gives the ex-Herbst casinos a fighting chance.
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