Private equity firm acquires largest ownership stake in Affinity Gaming

An Illinois-based private equity firm has acquired the largest ownership stake in casino operator Affinity Gaming, but the company is expected to remain a passive investor in the operation.

According to a filing with U.S. Securities and Exchange Commission, Z Capital Partners of Lake Forest, Ill., now owns almost 4 million shares of Affinity Gaming, or 19.8 percent of the company’s outstanding shares.

The purchase was the third such filing in less than a month by Z Capital concerning Affinity, which operates 15 casinos in Missouri, Iowa and Nevada. Affinity owns 12 properties in Nevada, including the off-Strip Terrible’s and the three casinos in Primm.

On its website, Z Capital describes its investment strategy as looking at “investments in distressed middle-market companies via complex transactions through restructuring and/or bankruptcy processes, opportunistic acquisitions and special situations.”

Z Capital is managed by CEO James Zenni Jr. and the firm has invested in such companies as Mrs. Fields and TCBY.

Through a spokesman, Zenni declined comment.

Affinity Gaming was formerly known as Herbst Gaming. The company emerged from bankruptcy court-supervised reorganization nearly a year ago, having reduced its long-term debt from $1.1 billion to $350 million. The founding Herbst family lost control of the company through the reorganization.

Silver Point Capital, a Greenwich, Conn.-based hedge fund, had been Affinity’s largest shareholder with almost 19 percent of the company.

Silver Point co-CEO Edward Mule was licensed by Nevada gaming regulators, but his company did not have a representative on Affinity’s five-person board of directors.

When the company emerged from bankruptcy, a consortium of some 140 lenders in the former Herbst Gaming took over ownership, exchanging debt for equity.

Affinity officials don’t believe Z Capital will seek a seat on the board of directors. It’s unclear whether the company will apply for a Nevada gaming license. Under state gaming law, Z Capital can own up to 25 percent of Affinity as a passive investor.

In September, Affinity Gaming agreed to a series of transactions with tavern operator Golden Gaming and JETT Gaming, a slot machine-route business owned by the Herbst family.

Affinity sold its Searchlight casino and its slot machine routes covering the Terrible Herbst convenience stores in Nevada to JETT Gaming, which is controlled by Terrible’s Oil Chief Executive Officer Jerry Herbst. His sons, Ed, Tim and Troy Herbst, founded Herbst Gaming.

A second deal gave Golden Gaming the bulk of Affinity’s slot machine-route business and the company’s two casinos in Pahrump. Golden Gaming then sold its three casinos in Colorado to Affinity.

All three transactions are expected to close next year pending approval of state gaming regulators.

The three Colorado casinos — Golden Mardi Gras, Golden Gates and Golden Gulch — are just outside Denver in Black Hawk.

By shedding the slot machine-route business, Affinity Gaming will focus solely on casino operations in four states once the Colorado transaction is approved.

Because Colorado of gaming regulations, Z Capital will have to apply for a state gaming license.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.
Follow @howardstutz on Twitter.