Progressive Gaming’s federal appeal to cost $20 million, plus

October 30, 2007 3:49 AM
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For Progressive Gaming International Corp. (PGIC) the court ruling last Thursday could not have come at a worse time.

Just recently, the company received a much-needed cash infusion from the sale of its table game division to Shuffle Master Inc (SHFL). And earlier last week, the company said it had filed a $50 million shelf registration to give it more operating latitude.

But the ruling from the U.S. District Court for the Southern District of Mississippi that requires the company to post a $20 million bond in order to begin a federal appeal of a judgment against it was unexpected.

Some five years ago, Progressive Gaming was sued by a company that alleged it had operated in an illegal manner that caused a restraint of trade and that it had attempted to monopolize the proprietary table game market in the United States. The verdict following trial last February was a $39 million judgment against PGIC.

The company indicated it intended to appeal and asked the U.S. District Court for injunctive relief from the judgment. A decision from the court wasn’t expected until early 2008.

But on Thursday, the court ruled that Progressive Gaming had to not only file the $20 million bond to go forward but also had to grant a separate subordinated security interest in the company’s assets for the rest of the judgment.

The company immediately replied that it would comply by Nov. 8.

The quick court ruling caught some analysts off guard.

Traci Mangini of ThinkEquity Partners, who had provided the company with an "accumulate" rating reduced that rating on Monday to "hold," and cut the share price target to $5 from $7.50.

In a clients note, she wrote, "While we remain optimistic about Progressive’s chances to prevail in this more sophisticated court system, we believe this weakens its balance sheet."

Another analyst, Steven Kent of Goldman Sachs, said he wondered about the company’s ability to maintain its financial structure since its $45 million of debt needs to be repaid by next August.

In Monday, trading, the share price of PGIC fell 18% to $3.93 per share.

Buyers sought

Analysts have been speculating about the future of Ameristar Casinos Inc. (ASCA) now that the estate of the late founder Craig H. Neilsen has indicated that it plans to sell all or part of its 31.5 million shares.

Although the company is based in Las Vegas, it does not operate any casinos in this gaming Mecca. The closest it came was two years ago when it was involved in a proxy fight for Aztar Corp., a battle that eventually was won by privately-held Columbia Sussex Corp.

Under the stipulation of Neilsen’s will, the charitable organization that inherited the shares must give away five percent of its value every year and must reduce its stake in the company below 20% within five years of receiving the shares.

It was noted that the estate would file a tax return in mid-February 2008, indicating to analysts that the transfer of shares would occur sooner than expected.

Bankruptcy plan

If the New York legislature approves a plan from Gov. Eliot Spitzer to permit the New York Racing Association (NYRA) to continue operating that state’s three major racetracks, the issue of who owns the real estate will be resolved.

In a bankruptcy filing, NYRA said that if it receives the franchise it will surrender a claim of ownership of the land on which sits the three tracks — Aqueduct, Belmont and Saratoga — thus resolving the land dispute that arose more than a decade ago.

The Spitzer plan provides that the state will choose, in consultation with NYRA, a gaming entity to run video lottery terminals at Aqueduct with the state to provide NYRA $75 million annually from its gaming revenues. The state also will forgive the debt NYRA now owes.

Still to be heard from are the lawmakers, some of whom are already on record as opposing the Spitzer plan.

Quarterly earnings

Although Wynn Resorts Ltd. (WYNN) wasn’t scheduled to report its quarterly earnings for the period that ended on Sept. 30 until Tuesday, speculators pushed the company’s share price to record levels on Monday.

The speculation was due to reports of nearly a 50% increase in gambling revenues in the Macau enclave where gaming has reached a level where the results surpass Las Vegas.

Also benefiting from the Macau speculation were Las Vegas Sands Corp. (LVS), the first American casino operator in Macau, MGM MIRAGE Inc. (MGM), which is expected to open Macau casino in December, and Melco PBL Entertainment (MPEL), a more recent Macau operator.

Other gaming companies that have scheduled quarterly report announcements are:

Boyd Gaming Corporation (BYD) on Wednesday, Oct. 31, at 9 a.m. PDT.

Progressive Gaming International Inc. (PGIC) on Thursday, Nov. 1, at 8 a.m. PDT.

Trump Entertainment Resorts Inc. (TRMP) on Thursday, Nov. 1, at 9 a.m. PDT.

Magna Entertainment Corp. (MEC) on Friday, Nov. 2 at 7 a.m. PDT.

Ameristar Casinos Inc. (ASCA) on Monday, Nov. 5, at 2:15 p.m. PST.

Harrah’s Entertainment Inc. (HET) on Wednesday, Nov. 7, at 4 a.m. PST.

Youbet.com Inc. (UBET) on Wednesday, Nov. 7, at 2 p.m. PST.

MTR Gaming Group Inc. (MNTG) on Nov. 8 at 7 a.m. PST.

Cash Systems Inc. (CKNN) on Thursday, Nov. 8 at 2 p.m. PST.

THE INSIDER: Billionaire Lim Goh Tong, 90, founder of the Genting Group of companies, operators of casinos in Malaysia, Britain and a license holder for a casino in Singapore, died last Tuesday. Forbes magazine listed him as the third richest man in Malaysia with net worth of $4.3 billion.

Lakes Entertainment Inc. (LACO) has advised the Securities & Exchange Commission that it had terminated the employment of Robert Wyre as its senior vice president of operations. The company is conducting a search for his replacement.

Two gaming analysts for Brean Murray and Jefferies & Co. have downgraded the shares of Penn National Gaming Inc. (PENN) from buy to hold.