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Affinity Gaming reaches 'exclusivity' sales agreement with Z Capital

28 Nov 2015

By Howard Stutz
The largest shareholder in casino operator Affinity Gaming said Friday it reached an exclusivity agreement with the company's board to purchase all outstanding shares of the Las Vegas-based company.

According to U.S. Securities and Exchange Commission filings, Illinois-based investment group Z Capital — which already owns 40.5% of Affinity — has until Dec. 16 to negotiate with other shareholders to acquire the bulk of the regional gaming operation for $15 per share.

Affinity operates 11 casinos in four states, including the off-Strip Silver Sevens Hotel & Casino and the three Primm resorts. The company is not publicly traded but has $382.7 million of publicly-owned debt.

Z Capital CEO James Zenni has made numerous attempts in recent years to acquire Affinity. The exclusivity agreement follows an offer earlier this month of $13 per share. Zenni was appointed to Affinity's board in 2014 after a lengthy legal skirmish with the company's previous board.

Affinity attorney Marc Rubinstein declined comment Friday. Zenni could not be reached for comment.

Affinity Gaming has roughly 60 shareholders and more than 20.3 million outstanding shares, including the the 40.5% owned by Z Capital. In its most recent offer, Z Capital said it would fund the transaction through "equity capital provided by funds managed and advised by Z Capital, as well as debt financing from sources with which Z Capital has a long-standing relationship.

Silver Point Capital, a Connecticut investment firm, is Affinity's second-largest shareholder with a 25.8 ownership stake. The next two largest shareholders combined own another 20% of Affinity Gaming.

Sources close to the deal said a merger agreement has been drafted but not yet executed.

If the shareholders agree to the buyout, the transaction will require regulatory approval. Z Capital has slowly increased its stake in Affinity Gaming and is licensed in the four states — Nevada, Iowa, Colorado and Missouri — where the company operates casinos. Zenni was licensed by Nevada gaming regulators as an investor in 2012.

Z Capital describes itself as having approximately $2.3 billion of assets under management. Among the company's holdings are Mrs. Fields cookies, TCBY Yogurt Chevy's restaurants and the El Torito restaurant chain.

Affinity Gaming was formed in 2010 after the bankruptcy reorganization of Herbst Gaming. Sales and acquisitions since the reorganization created the existing company.

The company has turned around its financial prospects in this year. Earlier this week, Moody's Investors Service upgraded its view of the company, based on results for the quarter that ended Sept. 30. Affinity reversed a net loss from a year ago to a profit of almost $2 million.

In Nevada, where Affinity operates five properties, net revenue grew 6.1%, to $61.5 million, and cash flow jumped 83.7%.

Affinity said its casinos in Missouri and Iowa saw combined revenue decline 1.6% during the quarter while the company's three Colorado casinos saw a 3% revenue decline.

In the first nine months of the year, Affinity's revenue is up 2.3%; cash flow increased 34%.

Moody's also addressed the possible Z Capital acquisition, saying the ratings and outlook didn't take the potential buyout into consideration.

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