We’re racing fans, particularly of the Baja 1000, and we admire the Herbst family, owners of Terrible Herbst Motorsports and Herbst Gaming, for the success of their race cars and their other businesses, all of which have grown from a single Chicago gas station.
So we’re sad to report that as a result of the subprime crisis and its effect on the credit and bond markets, Herbst Gaming may file for protection from creditors under Chapter 11 of the US Bankruptcy Code if it is unable to alter its payment structure for $1.14 billion in debt.
Herbst Gaming, which operates 16 casinos and 7,200 slot machines in Nevada, as well as hotel and gaming properties in Louisiana and Missouri, is privately held by the Herbst brothers, but roughly three-quarters of its debt is provided by publicly traded bonds.
According to recent filings with the SEC, Herbst Gaming has said that its operations are being negatively affected by the subprime mortgage crisis, a statewide ban on smoking in taverns and restaurants, higher gasoline prices, and loss of gaming customers to Indian casinos.
Herbst Gaming’s revenues were $849.2 million in 2007, almost 43 percent higher than 2006, after spending $543 million to acquire two major casino companies and nearly doubling the size of its casino holdings. A 20% loss in revenue from its slot route business coupled with the increased debt load from the acquisitions resulted in a net loss of $127.2 million last year.
Herbst Gaming expects to enter into discussions with its credit agreement lenders to negotiate a forbearance agreement.
“If either the credit agreement indebtedness or the subordinated indebtedness were to be accelerated upon a default, we would be required to refinance or restructure the payments on that debt,” the company stated. “If we were unable to do so, we may be required to seek protection under Chapter 11 of the U. S. Bankruptcy Code.”
We’re still rooting for the Terrible Herbst Team.
To read the latest news on Herbst Gaming, see our post More Terrible News for Terrible Herbst — Bonds Ratings Lowered and Still No Deal with Creditors.