Riviera said it elected not to make a $4-million interest payment on its credit facility that was due Monday, March 30, and that it does not plan to make the payment within the three-day grace period, which will constitute a default. It previously received a notice of default at the end of February for its failure to provide a Deposit Account Control Agreement to Wachovia that would have given Wachovia access all of Riviera's operating cash and transferred it to a bank account specified by Wachovia. The notice means the interest rate on its term loan will increase 100 basis points to 8.5%, and that Wachovia can seek an additional default interest payment equal to 2% of the company's outstanding principal, and automatically charge and additional default interest of 1% on any overdue amounts.

Riviera says it is in discussions with Wachovia to negotiate a waiver or forbearance agreement regarding both the existing and imminent default. If it cannot, Wachovia could accelerate repayment of all amounts outstanding under the credit facility; foreclose on some or all of our assets securing the debt; or exercise other rights and remedies. The bank also could terminate the interest rate swap agreement and accelerate repayment of the $30.2-million outstanding as of the end of the year. If it does and Riviera can't pay, it would likely seek protection from creditors under Chapter 11 of the US Bankruptcy Code.

"These conditions raise substantial doubt about the Company's ability to continue as a going concern," the company states in its annual report filed Tuesday, March 31 with the SEC.

Company chairman William Westerman said the decision not to make the payment was "both difficult and unpleasant" because the company has always prided itself in on paying all its obligations on a timely basis.

"However, in view of the continuing devastating competitive pressure on room rates, the rapidly depreciating convention attendance in the Las Vegas market, and the input of our financial adviser, we determined it was imperative and in the best interests of our company to maximize our liquidity by retaining the funds that would have been employed to pay the first quarter interest," he said.

Both the Las Vegas and Black Hawk properties are generating positive free cash flow, Westerman said, "and that, combined with our cash balances, will help insure that the company continues to pay all its operating costs on a timely basis and fund maintenance capital expenditures."

During the company's third quarter conference call, Westerman assured analysts that the company was well positioned to weather the economic downturn thanks to a $225 million bank loan at just under 7.5% interest that doesn't come due until June 2014. The company also has a $20 million revolving credit line. In addition, he said the company suspended its room renovation effort and has been cutting costs, including management-level jobs at both properties. The company has renovated rooms in four of its five hotel towers at its Las Vegas property at a cost of nearly $19 million and also opened a new $11-million sports book earlier this year.

Now Westerman says the deteriorating trends in revenue and earnings experienced during the first three quarters of 2008 continued into the fourth quarter and accelerated during the first quarter of 2009. "We expect this situation to continue as long as competitors in the Las Vegas market follow a strategy of sacrificing ADR to maximize room occupancy and the decline in convention business is unabated," he says. "In spite of this pessimistic outlook, we are confident that we will maintain sufficient cash flow to meet our operating obligations and maintain our properties. We expect to emerge through a restructuring with a capital structure which will enable the company not only to survive, but to grow as the economy recovers and the competitive situation in Las Vegas returns to a more rational environment."