Herbst Gaming plans $150 million 10-year note offering via Lehman

By Paul Deckelman

New York, Nov. 1 - Herbst Gaming Inc. said Monday that it would sell $150 million of new senior subordinated notes via a Rule 144A private placement offering.

High-yield market sources said that the new issue will be brought to market via Lehman Brothers, which was the lead manager of the company's two previous bond issues this year. The offering is expected to price Friday following a short roadshow that is slated to begin on Wednesday.

The notes will have a 10-year maturity and will be non-callable for the first five years after their issue, except for the standard three-year equity clawback provision for a call of up to 35% of the issue using the proceeds of any equity offering.

Ratings have not been assigned to the new deal yet; however, Moody's Investors Service rates the company's existing senior subordinated notes B3 and Standard & Poor's gives them a B- rating.

Las Vegas-based Herbst owns and operates five casinos in Nevada under the "Terrible's" name, including one Las Vegas location. It also owns and operates slot machines in non-casino locations, such as retail stores, and has its own chain of convenience stores and gas stations throughout Nevada.

The company plans to use the proceeds of the bond deal to fund its planned $287 million acquisition of Grace Entertainment's riverboat casino assets in Missouri and Iowa. The purchase of the St. Jo Frontier Casino in St. Joseph, Mo., the Mark Twain Casino in La Grange, Mo., and the Lakeside Casino Resort in Osceola, Iowa, represents the first major foray outside of Nevada for Herbst, whose mustachioed, six-shooter-waving "Terrible Bad-Guy" logo has been a familiar sight throughout the state since the late 1950s.

The current deal will be Herbst's third of the year; on Jan. 24, it priced a $47 million add-on issue of 10¾% senior secured notes due Sept. 1, 2008, slightly upsized from the original $45 million principal amount, and on May 27, Herbst priced $160 million of new 8 1/8% senior subordinated notes due June 1, 2012, upsized from the originally planned $150 million. Lehman Brothers brought the January add-on deal to market by itself and was also the bookrunner on the May 8 1/8% deal, with Banc of America Securities, Piper Jaffray and Wells Fargo Capital as co-managers.

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