Annual Report on Form 10-K for the year ended 12 ... - Affinity Gaming

Additionally, we have invested in a unified operating strategy, rebranding assets away from the “Terrible’s” trade nameand repositioning them back to the name each local community is familiar with, as well as rolling out a singular player’s clubwith our “A-Play,” one card platform.RESTRUCTURING TRANSACTIONSOn March 22, 2009, Predecessor filed voluntary petitions for relief (the “Chapter 11 Cases”) under Chapter 11 of theBankruptcy Code to preserve its assets and the value of its estates (Bankruptcy Court case numbers 09-50746-GWZ through09-50763-GWZ). This filing resulted from Predecessor’s significant leverage, including approximately $1.1 billion of longtermdebt; sharply declining gaming and hotel revenue stemming from a severe nationwide recession; significant declines inslot route revenue following the enactment of the Nevada Clean Indoor Air Act (which prohibited smoking in indoor places ofemployment, including but not limited to bars and taverns that serve food, grocery stores, malls and other retail establishments);and constrained credit markets, particularly with respect to the gaming industry.From March 22, 2009 through December 31, 2010, Predecessor operated the business and managed the properties asdebtors-in-possession, subject to the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions ofthe Bankruptcy Code. On January 22, 2010, the Bankruptcy Court issued an Amended Order Confirming Debtors’ FirstAmended Joint Plan of Reorganization (the “Order”), confirming the amended joint plan of reorganization, as modified by theFindings of Fact and Conclusions of Law in Support of Order Confirming Debtors’ First Amended Joint Plan of Reorganization(the “Findings of Fact”) entered contemporaneously with the Order (the amended joint plan of reorganization as modified bythe Findings of Fact, the “Bankruptcy Plan”). On February 5, 2010, the Predecessor’s Bankruptcy Plan became effective, butwas not fully implemented until December 31, 2010 (the “Emergence Date”) after all requisite regulatory approvals wereobtained.On the Emergence Date, (i) we acquired substantially all of the assets of Predecessor in consideration for $350 million inaggregate principal amount of senior secured loans (the “Senior Secured Loans”) and the issuance to Predecessor of all of ourmembership interests (the “Common Units”), (ii) Predecessor distributed the Senior Secured Loans and Common Units to thelenders under HGI’s $860 million senior credit facility (the “HGI Credit Facility”) on a pro rata basis in accordance with theBankruptcy Plan, (iii) all of Predecessor’s approximately $1.1 billion in outstanding long-term debt obligations consisting ofborrowings under the HGI Credit Facility, $160 million of outstanding principal amount of 8.125% senior subordinated notes(the “8.125% Notes”) and $170 million of outstanding principal amount of 7% senior subordinated notes (the “7% Notes”)were terminated, and (iv) 100% of the existing equity in Predecessor was cancelled (clauses (i) through (iv) referred to herein asthe “Restructuring Transactions”). From and after the transfer of Predecessor’s assets to us, we wholly own all of Predecessor’ssubsidiaries, except those divested pursuant to the Acquisition and Disposition Transactions and the Truckee Disposition.REFINANCING TRANSACTIONSOn May 9, 2012, we repaid all of the $342 million of debt then outstanding under the Senior Secured Loans. The fundsused to prepay the debt were obtained through, (i) the issuance of $200 million of 9.00% Senior Unsecured Notes due 2018(”2018 Notes”), (ii) a term loan facility of $200 million (the “Term Loan Facility”), and (iii) a revolving credit facilityproviding for up to $35 million of revolving extensions of credit outstanding at any time (including revolving loans, swinglineloans and letters of credit) (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “New CreditFacilities”), which was undrawn at close.RECENT EVENTSOn September 7, 2012, we entered into an Asset Purchase Agreement (“Agreement”) with Truckee Gaming, LLC(“Truckee Gaming”) regarding the Truckee Disposition. The transaction closed on February 1, 2013. Truckee Gaming paid abase purchase price of $19.2 million less a $1.7 million credit for deferred maintenance capital plus an adjustment related toEBITDA through the closing date of the transaction of $1.4 million. Truckee Gaming received $2.9 million in cash as part ofthe assets transferred, which consisted of $2.5 million in cage cash and $0.4 million transferred as a purchase price adjustment.The Agreement also includes a contractual purchase price adjustment based on the working capital balances, exclusive of cash,with a payment to either Truckee Gaming or us, pegging the working capital balances at zero. Based on the preliminaryworking capital balances as of February 1, 2013, Truckee Gaming received $1 million as a purchase price adjustment. Net ofthe purchase price adjustments and cash delivered to Truckee Gaming, we received gross proceeds of $17.5 million which weredeposited into an account subject to a control agreement to be withdrawn by us, as permitted under the Credit Agreement. We25