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 It's safe to say that the state of the casino industry has changed substantially in the past year or two.
It was only late 2006 when management of Station Casinos Inc. and private equity firm Colony Capital LLC announced an $8.8 billion bid for the Las Vegas gaming company. Texas Pacific Group and Apollo Management LP won giant Harrah's Entertainment Inc. for $27.8 billion, or $90 a share. The following spring, Riviera Holdings Corp. weighed a $30 per share offer, and Whitehall Street Real Estate Funds agreed to shell out $1.3 billion for four Nevada casinos owned by Carl Icahn's American Real Estate Partners LP. An industry analyst told The Deal in early 2007 that the gaming sector could continue to spin out deals because of factors including "the cost of money, the asset-generating intensity in the gaming business and the clear benefits of scale." Buyers also raced to capture the last available land on the Las Vegas Strip with real estate values trending ever-upward. Activity in the sector crescendoed when PE firms Fortress Investment Group LLC and Centerbridge Partners LP agreed to pay $8.9 billion for Penn National Gaming Inc. in July 2007. And now? Real estate values have fallen substantially, and descending revenue, high debt loads and limited refinancing options are putting many gaming companies in a bind. Tropicana Entertainment LLC, the entity formed out of Columbia Sussex Corp.'s $2.75 billion buyout in January 2007 of Aztar Corp., has been bankrupt since May. A conservator appointed by New Jersey is attempting to sell its Tropicana Atlantic City Casino & Resort, which was seized by the state last December. With credit tight and the economy weak, Fortress and Centerbridge scrapped the Penn National buyout in July, paying a $225 million breakup fee and investing $1.25 billion in preferred stock. Trump Entertainment Resorts Inc., which emerged from bankruptcy in May 2005, has missed an interest payment, raising the specter of another filing. (Parts of Donald Trump's Atlantic City casino empire went through Chapter 11 in the 1990s, which would make a new bankruptcy petition a so-called Chapter 33.) Lenders to Herbst Gaming Inc., which controls casinos in Nevada, Iowa and Missouri, have accelerated the balance on its $860 million credit facility, and the company warns in its recent quarterly report with the Securities and Exchange Commission that it could have to file for Chapter 11 if it can't restructure the debt. A forbearance deal runs through Wednesday. Even Harrah's is attempting to pare some of its debt, recently launching an exchange offer for $2.1 billion of new second-lien notes. It hopes to shave some $1 billion off its $12.4 billion debt load. Things are so bad that consultant Joseph Weinert of Spectrum Gaming Group speculates as many as five of Atlantic City's 11 casinos could be tied up in Chapter 11 proceedings: the Trop AC, two of Trump's casinos (a third is for sale), and Resorts Atlantic City and the Atlantic City Hilton Casino Resort, both controlled by Colony Capital's Colony RIH Holdings Inc. Colony reportedly skipped an interest payment last month. All in all, quite a turnaround for an industry that was flying high not long ago. Then again, gaming unfortunately has plenty of company in that regard. - David Elman David Elman is the editor of The Deal's Bankruptcy Insider newsletter. CategoriesComments Deal Video
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Further consolidation is now in the cards at lower entry fees. Watch for deals involving Boyd Gaming (BYD) and Pinnacle (PNK); and Las Vegas Sands (LVS) and Wynn Resorts (WYNN). Even without deals, WYNN has great prospects as it opens a new resort in Las Vegas called, Encore. Wynn should double its revenue in 2009 even with a soft economy.