With its buyout deal with Hedwigs a bust, Hooters Casino Hotel’s owner hopes that it won’t be too hard to find a buyer who appreciates the company’s ample assets.
Investment company 155 East Tropicana, said Monday that it was terminating its agreement to sell Hooters Casino Hotel to Hedwigs Las Vegas Top Tier for USD 98.0 million after the buyer failed to make a required USD 500,000 payment by June 6.
Although the company said gaming revenue increased last quarter, a falling room rates led to a 6.4% decline in first-quarter sales. Companies across the gaming industry – especially in Las Vegas – have been pressured by the U.S. economic slowdown, which has kept squandering tourists at bay.
Hedwigs had already paid USD 5.5 million in non-refundable deposit and extension fees to East Tropicana. The companies had entered into three different amendments to the original agreement, which was initiated after Hedwigs made an unsolicited offer.
Under terms of the agreement, Hedwigs would pay undisclosed amounts of accrued royalties and some of East Tropicana’s outstanding liabilities in addition to the USD 98.0 million purchase price. The agreement also deemed Hedwigs responsible for East Tropicana’s USD 130.0 million in 8.75% senior secured notes, due in 2012.
East Tropicana is already in trouble. Its ability to meet its debt obligations was called into question by Moody’s Investors Service back in April. The ratings agency downgraded East Tropicana’s corporate family rating, its probability of default rating and the rating on its aforementioned senior secured notes to Caa3, from Caa1, putting it deeper into junk bond territory. The agency said the outlook on all ratings was negative.
Moody’s had also said that East Tropicana would be at increased default risk if its agreement to sell Hooters Casino Hotel to Hedwigs fell through.
At the end of March, the company said it would negotiate with its USD 15.0 million four-year revolving credit facility to extend the March 30, 2009 due date if the buyout deal fell flat. At that time, East Tropicana said outstanding draws totaled USD 6.4 million and cash totaled USD 11.2 million.
„We believe that we have the flexibility to cover operational contingencies, working capital needs, capital expenditures and debt service obligations during 2008 through the use of cash … our cash flow from operations, and our ability to draw against our USD 15.0 million credit facility, along with other available equipment financing and the receipt of extension fees payments called for under the pending purchase agreement that have been received subsequent to December 31, 2007,“ the company said.
On Monday, East Tropicana’s board said it would „consider strategic alternatives“ in the coming months. The company has an exclusive license from Hooters of America to use the brand in its hotel and casino.
Hedwigs Las Vegas Top Tier is an affiliate of the investment group led by NTH Advisory Group, a Santa Monica, Calif.-based casino and hotel development and advisory firm.