Mikohn’s new financing to bankroll operations

Aug 28, 2001 4:53 AM

What do you do when you get your act together? Take it on the road! At least that’s what Mikohn Gaming’s top executives did for the past 30 days.

Mikohn President David Thompson and Chief Financial Officer Don Stevens recently returned from a “bond road show” that generated $105 million in new financing through the issuance of high yield bonds.

“This gives us the financing we need for the next seven years,” Stevens told GamingToday.

Stevens said the bonds were underwritten by Jefferies and CIBC, and that he and Thompson spent about 30 days pitching them to more than 80 institutional investment groups.

He added that selling the bonds was made easier by a “fairly robust” high-yield bond market, coupled with a stock market on the slide.

“The gaming segment is actually the hot part of the bond market,” Stevens said. “Analysts are predicting stable growth for the industry, which has proven to be less susceptible to a slowing economy.”

The funds generated from the bonds will be used to pay off principle payments that will come up next year, Stevens said, as well as provide the company with the capital needed to “focus our energies on the gaming operations segment.”

The gaming operations segment of Mikohn’s business involves leasing its branded slot machines, such as Yahtzee, Battleship and Ripley’s Believe It Or Not, to casino operators.

And, while the recurring revenues produced by leased games are highly profitable, they require large amounts of working capital.

“Every one of those games represent an investment of $9,000-$10,000 each, and we finance them up front,” Stevens said.

Costs notwithstanding, the leased games segment of Mikohn’s business is the fastest growing. So far this year, the company has added 400 leased slot machines to its operations, and it has contracts for over 850 games in backlog.

Industry wide, the number of leased games went from 29,000 to 39,000, a 35 percent increase over the 12 months ended March 2001.

During that same time span, Mikohn increased its leased games in the field by 121 percent, and increased its overall market share from 4 percent to 7 percent.

“Obviously, we’re a small company with only three leased games, but all three are hits,” Stevens said. “We have more brand name games coming up, but we are content with our niche.”

Mikohn’s “niche,” Stevens explained, is slot games that are primarily based on well-known, time-tested brands with a game concept, as opposed to TV shows, celebrities or even food products.

“We’ve never believed in coming out with a full plate of games and throwing them against a wall to see what sticks,” he said. “Instead, we spend a lot of time developing the game and testing it with focus groups.”

So, what can the industry expect from all the time and effort spent developing new games? At the upcoming gaming shows in October, Mikohn will unveil its new game based on the popular Clue mystery board game.

Beyond that, Stevens would reveal specifics.

“If you have a toy chest that’s 40 or 50 years, go into it and see what you find,” he said. “The chances are you might come up with our next slot game.”