Bref HR LLC, the owner and operator of the Hard Rock Hotel & Casino Las Vegas, is seeking options to avoid missing a March mortgage interest payment. Failure to pay could jeopardize the company’s future and lead to foreclosure.
Affiliates of Brookfield Financial LLC formed New York-based Bref in February 2011 to buy the interests of HRHH JV Junior Mezz LLC, which indirectly owned the hotel. HRHH’s interests were assigned to Bref in lieu of foreclosure after HRHH had defaulted on a mortgage loan provided by Brookfield. (Bref is a franchisee of Hard Rock Cafe International, Inc., which owns the global trademark for all Hard Rock brands.)
In March 2011, the company entered into a second mortgage loan agreement with Brookfield Financial for $30 million, pledging land, buildings, improvements, equipment and fixtures as collateral. The mortgage matures on March 1, 2018 and has an interest rate of 15 percent, payable at maturity.
In a Dec. 23 filing with the U.S. Securities and Exchange Commission, Bref raised substantial doubt about the company’s ability to survive, anticipating that it will not have the funds to meet a payment-in-kind interest installment due on March 1.
Bref’s ability to continue depends on restructuring debt, obtaining additional financing or securing lender approval to use available cash reserves to make the interest payment. If the company misses the payment, the lender has the option to accelerate the loan, which could result in foreclosure.
The company incurred a $68 million loss for the nine months ended Sept. 30, 2012, according to SEC filings. The company issued a statement on Dec. 13, saying that there were errors related to cash flow statements in 2011, and that the financial statements for that period should not be relied upon. Bref did not include 2013 financials in the Dec. 23 filing.
Several hotels and casinos in the Las Vegas area have suffered from financial woes. In 2009, the still-unfinished Fontainebleau Las Vegas, which was planned as a hotel, casino and residential project, sought bankruptcy protection. In 2010, Las Vegas hotel and casino the Riviera filed for bankruptcy protection, eventually restructuring debt and issuing equity to lenders. In 2012 the owner of the Silver Legacy Resort Casino in Reno, Nev., filed for bankruptcy, citing the economic decline.
Dependent as it is on discretionary spending, the U.S. casino industry has been slow to recover since the recession. Recently, there have been some signs of recovery, and dealmaking appears to be on the uptick. For more, see “The Buyside: Pinnacle Deal Signifies Gaming Comeback.”
For last week’s edition of Turnaround Tuesday, see “After Bankruptcy, Biovest Faces Uncertain Future.”
For more troubled companies, see Mergers & Acquisitions’ Distressed Company Watch List.