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Silver Legacy owners eye sunnier days

John Seelmeyer

Gary Carano looked out the window of his second-floor office at the Silver Legacy last week, watching as clouds from the winter’s first storm cleared to allow bright sunshine to fill the sky.

Carano, chief executive officer of the partnership that owns Silver Legacy, knew the feeling well.

Federal Bankruptcy Judge Bruce Beesley had just blessed a plan to reorganize Silver Legacy’s debt, allowing the company a relatively quick exit from the Chapter 11 bankruptcy protection it sought it May.

The fresh start plays out for Silver Legacy and its management on three fronts financial, operational and personal.

The key to reorganizing the company’s finance is a new $70 million loan from Wells Fargo.

Silver Legacy, owned by a joint venture of Circus Circus and the Carano family’s Eldorado Resorts LLC, will use that money along with additional cash kicked in by its owners and cash that the property had available on its own to work out $142 million in mortgage debt.

The debt in essence, a balloon payment on a 10-year mortgage had been looming ever larger as the credit markets seized up and visitor traffic declined during the recession.

The company defaulted on the debt in March, continued talking with the bondholders for a few weeks, then filed for Chapter 11 reorganization.

The situation was frustrating, Carano said, because the property with its 1,711 rooms and 87,300-square-foot casino continues to generate positive cash flow, even with the challenges to Reno’s gaming sector and the weakness of the regional economy that produces many of the Silver Legacy’s customers.

The company’s plan to exit Chapter 11 estimates the Silver Legacy will generate earnings of $16 million this year, a figure that is projected to increase to $20 million by 2016.

The plan notes, too, that the company’s operations have exceeded expectations during the time that it’s been operating under Chapter 11 protection.

The holders of the original $142 million in mortgage bonds will receive second-lien notes and cash that allow them to recover 88.8 percent of what they are owed.

One of the largest bondholders, Black Diamond Capital Management LLC, initially opposed the plan. But the company reversed course in mid-October, and the plan quickly moved to completion.

Trade vendors will be paid in full under the plan that won approval, although some will repaid over the next year, with interest.

Carano said vendors were offering their support even in the first days after the Chapter 11 filing, when Carano sat behind his desk and made one difficult call after another to about 50 suppliers whose payments would be delayed.

“Our trade vendors have been fabulous through all this,” he said.

The plan that’s been approved in bankruptcy court, Carano said, is very similar to a proposal that the company had on the table before took its expensive and distracting side trip into Chapter 11.

Payments under the new debt, Carano said, are “very manageable.”

“Our balance sheet future looks great,” he said, crediting the work of a team led by Stephanie Lepori, the Silver Legacy’s chief financial officer. “It allows us a breath of fresh air.”

Operationally, Carano said, Silver Legacy’s leadership team and staff now need to regain any ground the property may have lost during the distraction of the bankruptcy case.

“There’s no question that it hurt us,” he said.

Casino players worried about their rewards points. Some of the property’s 1,800 employees who didn’t completely understand the Chapter 11 process worried about their jobs. Managers needed to spend some of their time on assuaging those worries.

Silver Legacy has retained The Glenn Group of Reno to take a fresh look at the property’s two big markets the locals market of northern Nevada and the feeder market of northern California with an eye toward a rebranding effort.

The clouds that cleared last week from the skies above Silver Legacy also brought some sunshine to Carano personally.

“I felt somehow that I had failed in my role as CEO of this company,” he said. “I felt that I had clouded the name of the Carano family.”

But he began smiling again as he looked out the window.