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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 opening of CityCenter Las Vegas brought fun and excitement. Month’s later statistics are showing that there are more hotel rooms in Las Vegas than people to fill them. Evidence is appearing that indicates CityCenter is stealing business from other resorts.

Single-Property vs. Multi-Property Owners

This information is much more detrimental to single-property casinos such as, the Riviera and Tropicana which have more to lose than their competitors like MGM International who own multiple establishments on the Las Vegas strip. In the end, the single-properties are generating less money and have a smaller customer base to market too.

Also, visitors are staying at fancier, more expensive hotels because they have lowered their rates (which are aligned with budget hotels) due to the global recession. Many properties are back in the black, but aren’t making as much as they would if CityCenter wasn’t open.

The Numbers

From January through May of this year there was a 1.5 percent increase in visitation to Las Vegas. On the other hand, the number of overall hotel rooms jumped by 5.6 percent over the previous year. The occupancy rate throughout the city from January to May was 80 percent which is a 10 percent decrease from 2007 when Las Vegas tourism was at its greatest.

The total cost of CityCenter is $8.5 billion. The whole complex continues to struggle, not yet turning a profit. In the second quarter of 2010, an operating loss of $128 million dragged down MGM International’s earnings.  MGM believes that its competitors are losing even more money due to decreased gambling and room revenue.

MGM’s Aria consists of almost 30 percent gamblers. This is higher than any casino and resort in the Las Vegas area. This is due to marketing specifically to the gaming community who are expected to take the place of the traditional business. The gamblers are MGM loyalty program registrants that receive discounts.

Causes of a Decrease in Revenue

The global recession is the primary cause for the decline in the leisure and entertainment business. Also, with the opening of CityCenter, there has been a huge influx of competition in a tight market. Additionally, there is currently an overabundance of convention space but not enough conventioneers to fill it.

The combination of these things adds up and results in a major decrease in business. Casinos and resorts will need to look to new methods if they want to attract new guests and retain the loyal. Promotions and offers don’t seem to have the same effect as they once did. A new idea must be implemented for the gaming industry to jump back on its feet.

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.