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The Riviera Las Vegas is set to receive new gaming equipment, compliments of their parent company’s reorganization plan. With $291 million in debt and outstanding liabilities, Riviera Holdings Corporation filed bankruptcy with reorganization on July 12^th, 2010. This includes their Las Vegas and Colorado locations.

Their Savior

The Riviera Holdings Corporation is being bailed out by investors. Hotel and gaming guru Barry Sternlicht of the Starwood Capital Group has acquired most of the debt and plans to save the company.

The Numbers

In the second quarter of this year, the Riviera Holdings Corporation lost $4.2 million vs. a loss of $13.5 million just one year ago. However, revenue was down slightly over $2 million. These loses can be attributed to their isolated location at the Northern end of the Las Vegas strip in addition to the economy. With an abundance of hotels rooms and expo center space, all gaming properties are struggling.

During the past economic boom, each acre on the Riviera’s property was worth $30 million. This has significantly declined to $6 million per acre. This is attributed, once again, to their location as well as a lack of development of the surrounding area.

Recent Announcement

This past Friday, the company announced that they are planning to conserve cash with little investment in capital improvements. New, small improvements include, window treatments, exterior paint, exterior and interior signage improvements and elevator upgrades. Other improvements include, new slot machines and gaming software and hardware. These will be applied to both of their locations.

The Reorganization Plan

The proposal includes replacing its $291 million in debt with a $50 million term loan and possibly another $30 million. After the company emerges from the debt, it will be worth $216.5 million.

Projections

Maintenance and spending will jump from $3.6 million in 2010 to $9 million by 2015. Also, net revenue is expected to increase to $140 million by 2011, $145 million by 2012 and $171 million by 2015. Interest will resume once they emerge from debt will cause the company to lose additional money until 2015.

Many casinos are opting for bankruptcy with reorganization. Like in sports, the casino industry is experiencing a few rebuilding years. They will remain in decline then emerge stronger than ever. Once the Riviera and other properties are able to reinvest in capital projects and improvements, they will become quite the spectacle.

The long-standing Riviera Hotel and Casino filed for Chapter 11 bankruptcy this past Monday; a sad day in the Las Vegas casino community. However the Starwood Capital Group is contributing to the takeover of both the Las Vegas and Colorado locations. The Riviera stated that more than two-thirds of its $270 million worth of debt has been supported by holders with the primary debt holder being Starwood Capital.

Barry Sternlicht

Starwood Capital is headed by Barry Sternlicht, a hotel industry giant. During the late 1990’s he ran the Caesars World. He is also well known for expanding the Heavenly Bed at Westin Hotels. Up to this point he hasn’t commented on this progressive takeover. He is also well known in the real estate industry as being an entrepreneurial real estate investor. Recently, Barry raised $3 billion in two years for investment in loan portfolio Corus Bancshares.

Terms of the Deal

Starwood Capital and other investors completed a deal with Riviera Holdings to exchange their debt for controlling equity stake in the company. Also they will provide $10 to $30 million in financing to the Riviera. Other terms of the deal were that $220 million of the debt will be paid back leaving only around $50 million.

The Future

There are plans to continue to operate as the bankruptcy filing has had little effect on the Riviera’s operations. Their plans are to restructure its indebtedness and allow for new investment into the company. The hope is to emerge in a much improved financial situation with a stronger operational advantage.

Unfortunately stockholders will receive no return on investment. The Riviera foresees little recovery for equity holders. This filing will provide the Riviera properties with a viable capital structure and additional financing to expand. Since both Riviera Holding properties are continuing to show a positive cash flow, the money will be used to           pay operating costs in a timely manner and fund maintenance expenditures.

Reasons for the Filing

The primary reason for filing Chapter 11 is the economy. The Riviera lost $4.5 million in the first quarter of 2010. The company has been hurt by declines in trade show and convention attendance and the establishment’s isolated location.

The Riviera appears to have a strong rebound plan. With proper money management, a rise in the global economy and clever marketing techniques, they may be able to return to their old profitable ways.