Herbst indenture trustee files lawsuit, says subordinated noteholders entitled to plan distribution

By Caroline Salls

Pittsburgh, July 27 - Herbst Gaming, Inc. senior subordinated notes indenture trustee HSBC Bank USA, NA filed a lawsuit Monday in an effort to establish the contractual and statutory rights of the noteholders under the company's plan of reorganization, according to a filing with the U.S. Bankruptcy Court for the District of Nevada.

According to the complaint, the company's proposed plan of reorganization "is predicated on erroneous assumptions" that the company's subsidiary debtors have enforceable guarantee obligations secured by pledges of assets and that the notes claims are entirely subordinate to senior credit facility claims.

As a result, the indenture trustee said the noteholders are not scheduled to receive any distribution under Herbst's plan.

"The debtors' proposed plan ignores the fact that a substantial portion of the subsidiary guarantees and pledges of assets are unenforceable and that a substantial portion, if not all, of the senior credit facility claims do not qualify as senior debt under the indentures," HSBC said in the complaint.

"As a result, the holders of the notes are entitled to a substantial recovery in these cases."

The Las Vegas-based casino business owns and operates 12 casinos in Nevada, two in Missouri and one in Iowa. The company filed for bankruptcy on March 22. Its Chapter 11 case number is 09-50746.

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