155 East Tropicana exploring options to raise capital, sell or improve Vegas property

By Jennifer Lanning Drey

Portland, Ore., Aug. 15 - 155 East Tropicana LLC (Hooters Casino) is exploring options to raise capital through additional borrowings or an equity infusion, as it believes current levels of cash flow from operations will only support the company's cash needs for the next 12 months, Deborah J. Pierce, chief financial officer of East Tropicana, said during the company's Friday second-quarter earnings call.

"Based on maintaining our current levels of cash flow from operations, we believe that we have the flexibility to cover operational contingencies, working capital needs, capital expenditures and debt service obligations for the next 12 months," Pierce said.

East Tropicana had $7.6 million of cash at June 30.

In addition to considering financing options, East Tropicana's board of directors is working to determine the proper course of action for the company after its asset purchase agreement with Hedwigs Las Vegas Top Tier LLC was terminated on June 6.

"The board continues to have a firm belief that the underlying value of this asset is very attractive. How we unlock that value for all of our stakeholders is the challenging question," Mike Hessling, East Tropicana's president, said Friday.

Hessling said East Tropicana remains open to a potential sale of its 696-room hotel and approximately 29,000-square-foot casino located on the Las Vegas Strip but also realizes the difficulties involved with a sale in the current credit market.

The company is also considering further developing the property to increase its attractiveness to Las Vegas visitors in the hopes that improvements will lead to better operating efficiencies, EBITDA and revenues.

East Tropicana is evaluating making changes to the business model of the property as well as physical changes, which would be dependent on the company's ability to raise the required capital.

Revolver term extended

At June 30, East Tropicana had $6.5 million outstanding on its $15.0 revolving credit facility. On Aug. 13, the company extended the term of the credit facility to Sept. 30, 2011 from March 30, 2009.

For the six months ended June 30, East Tropicana generated $6.5 million of cash from operating activities, which was augmented by $5.5 million in forfeited deposits and extension fees related to the termination of the Hedwigs sale agreement.

Challenges to continue

East Tropicana's quarterly results showed signs of progress despite the difficult operating environment, which the company believes will get worse before getting better.

"We expect the challenges to the company will become even more demanding in the short term, and we expect little relief over the next quarters at minimum," Hessling said.

"The company is even more cognizant of those challenges now that the asset purchase agreement has been terminated."

East Tropicana reported adjusted EBITDA of $2.3 million in the second quarter, compared to adjusted EBITDA of $1.3 million in the same period of 2007.

Operating revenues decreased to $16.4 million from $17.5 million in the 2007 period, largely due to a decline in room revenue caused by the falling room rates necessary to remain competitive.

155 East Tropicana owns the Hooters Casino Hotel in Las Vegas.

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