Herbst Gaming is privately held by the Herbst brothers, Ed, Timand Troy, but roughly three-quarters of its debt is provided bypublicly traded bonds. The company operates 16 casinos (some withhotels) and 7,200 slot machines in Nevada.

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In this and previous filings, the company has said its SouthernNevada operations are being negatively affected by the subprimemortgage crisis and a statewide ban on smoking in taverns andrestaurants. Herbst's overall revenues grew 43% to $849.2 millionin 2007, thanks to the acquisition of two major casino companies,but a 20% loss in revenue from its slot route business coupled withthe increased debt load from the acquisitions resulted in a netloss of $127.2 million, according to SEC filings.

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The specific mention of a bankruptcy filing follows thecompany's decision last month to engageGoldman, Sachs & Co. as financial advisor to evaluate financialand strategic alternatives, including recapitalization,reorganization and sale. Prior to that an independent audit of thecompany's finances by Deloitte & Touche came with a "goingconcern" qualification, which is a default under its creditagreement with its bond holders.

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In its annual report, the company states that it expects toenter into discussions with its credit agreement lenders tonegotiate a forbearance agreement. If it is not successful inobtaining the forbearance or entering into another transaction toaddress its liquidity and capital structure, the lenders under itscredit agreement would have the ability to accelerate repayment ofall amounts outstanding under the credit agreement ($853 million atMarch 15, 2008). If the lenders under the credit agreement were torequire repayment of the outstanding borrowings upon a default, theholders of its subordinated indebtedness would have the ability todeclare a default, and accelerate repayment of, the subordinatedindebtedness ($330 million principal amount at March 15, 2008).

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"If either the credit agreement indebtedness or the subordinatedindebtedness were to be accelerated upon a default, we would berequired to refinance or restructure the payments on that debt,"the company states. "If we were unable to do so, we may be requiredto seek protection under Chapter 11 of the U. S. BankruptcyCode."

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