Circus & Eldorado Joint Venture, operator of the Silver Legacy Resort Casino in Reno, Nevada, filed for bankruptcy after defaulting on its mortgage debt amid a decline in gaming revenue.
The joint venture between MGM Resorts International (MGM:US) and Eldorado Resorts LLC listed assets of $264.1 million and debt of $174.4 million in Chapter 11 documents filed yesterday in U.S. Bankruptcy Court in Reno. Circus & Eldorado said it has an agreement with Capital Research & Management Co., a noteholder, that should allow it to file a reorganization plan by June 1.
The bankruptcy “is not the result of operational issues, but rather is driven by the need to restructure the mortgage notes as a consequence of their maturity on March 1, 2012,” Chief Financial Officer Stephanie Lepori said in court papers.
The resort, which opened in 1995 with a 19th Century theme, is linked to MGM’s Circus Circus Hotel and Casino and Eldorado’s Eldorado Hotel by 200-foot wide skyway corridors. It has six restaurants, a health spa, a fully automated antique mining rig and 87,300 square feet of gaming space, according to regulatory filings. The hotel has 1,709 guest rooms.
Gaming revenue in Nevada fell to about $562 million in 2010 from $754 million in 2007, and through November had dropped about 5 percent from the prior year, according to a January report from Standard & Poor’s. Average hotel occupancy rates fell to 66 percent in 2010 from 77 percent in 2006, according to the Reno-Sparks Convention & Visitors Authority and the Nevada State Gaming Control Board.
Casinos that have filed for bankruptcy in recent years include Hooters Casino Hotel and Tropicana Entertainment LLC. Circus & Eldorado had a net loss of $4 million in the first nine months of 2011 on revenue of $95.6 million, with interest expense was $11.3 million. The 2010 net loss was $9.6 million on revenue of $120.6 million.
The agreement with Capital Research should allow Circus & Eldorado to exit bankruptcy “with a minimum of turbulence” by paying noteholders an agreed-upon amount if they vote in favor of the plan, Lepori said in court documents.
Circus & Eldorado tried to restructure the mortgage debt out of court for more than a year, a solution that turned out to be “not feasible,” Lepori said. After failing to pay off the $142.8 million in 10.125 percent senior secured notes when they matured on March 1, the company entered a restructuring agreement with partners and a “significant holder” of the notes on March 16, according to filings with the Securities and Exchange Commission.
On May 2, Circus & Eldorado said it extended the deadline under the agreement to May 14 from April 30, and a noteholder agreed to forbear as long as the accord was in place. The agreement was amended and restated as of May 15 to adjust certain deadlines, terms and conditions, Lepori said.
The company said in court papers that 78 percent of key vendors agreed to support it in reorganizing. The agreements with vendors and Capital Research require that a proposed plan be filed by June 1.
Top holders of the defaulted notes included Capital World Investors, with a 33 percent stake as of March 31, and Thrivent Financial for Lutherans, with about 1.9 percent as of Dec. 31, according to data compiled by Bloomberg.
MGM Resorts, based in Las Vegas, fell 1.2 percent to $10.28 at 12:16 p.m. in New York Stock Exchange composite trading.
The case is In re Circus & Eldorado Joint Venture, 12-51156, U.S. Bankruptcy Court, District of Nevada (Reno).
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