SILVER LEGACY CAPITAL CORP - FORM 10-Q

SILVER LEGACY CAPITAL CORP - FORM 10-Q - November 13, 2009

Attached files

Attached files

SILVER LEGACY CAPITAL CORP Reports

Attached files

SILVER LEGACY CAPITAL CORP Reports

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

file	filename
EX-32.1 - SECTION 906 CERTIFICATION OF GARY L. CARANO - SILVER LEGACY CAPITAL CORP	dex321.htm
EX-31.1 - SECTION 302 CERTIFICATION OF GARY L. CARANO - SILVER LEGACY CAPITAL CORP	dex311.htm
EX-32.2 - SECTION 906 CERTIFICATION OF STEPHANIE D. LEPORI - SILVER LEGACY CAPITAL CORP	dex322.htm
EX-31.2 - SECTION 302 CERTIFICATION OF STEPHANIE D. LEPORI - SILVER LEGACY CAPITAL CORP	dex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009.

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number 333-87202

CIRCUS AND ELDORADO JOINT VENTURE

SILVER LEGACY CAPITAL CORP.

(Exact names of registrants as specified in their charters)


Nevada		88-0310787
Nevada		71-0868362
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

407 North Virginia Street, Reno, Nevada 89501

(Address of principal executive offices, including zip code)

(800) 687-7733

(Registrants’ telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, or smaller reporting companies. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether either of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act).


		Circus and Eldorado Joint Venture		Yes ¨ No x
		Silver Legacy Capital Corp.		Yes x No ¨

The number of shares of Silver Legacy Capital Corp.’s common stock outstanding at November 13, 2009 was 2,500. All of these shares are owned by Circus and Eldorado Joint Venture.

CIRCUS AND ELDORADO JOINT VENTURE

SILVER LEGACY CAPITAL CORP.

FORM 10-Q

INDEX


		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008	1
	Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2009 and 2008	2
	Condensed Consolidated Statement of Partners’ Equity (Unaudited) for the Nine Months Ended September 30, 2009	3
	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2009 and 2008	4
	Condensed Notes to Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17
PART II. OTHER INFORMATION
Item 5.	Other Information	18
Item 6.	Exhibits	18
SIGNATURES		19

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CIRCUS AND ELDORADO JOINT VENTURE

(doing business as Silver Legacy Resort Casino)

CONSOLIDATED BALANCE SHEETS

(In thousands)


	September 30, 2009		December 31, 2008
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	33,019	$	43,765
Accounts receivable, net		2,370		3,082
Inventories		1,969		2,020
Prepaid expenses and other		3,310		3,530

Total current assets		40,668		52,397
PROPERTY AND EQUIPMENT, NET		237,597		247,689
OTHER ASSETS, NET		7,175		7,235

Total Assets	$	285,440	$	307,321

LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,979	$	4,908
Accrued interest		1,206		5,401
Accrued and other liabilities		10,576		10,113

Total current liabilities		15,761		20,422
LONG-TERM DEBT		142,666		159,803
OTHER LONG-TERM LIABILITIES		7,299		6,618

Total liabilities		165,726		186,843
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS’ EQUITY		119,714		120,478

Total Liabilities and Partners’ Equity	$	285,440	$	307,321

The accompanying condensed notes are an integral part of these consolidated financial statements.

CIRCUS AND ELDORADO JOINT VENTURE

(doing business as Silver Legacy Resort Casino)

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
OPERATING REVENUES:
Casino	$	18,601		$	21,129		$	53,669		$	57,844
Rooms		8,723			10,158			24,320			29,043
Food and beverage		8,082			9,098			24,362			26,668
Other		2,087			2,726			5,687			7,928

		37,493			43,111			108,038			121,483
Less: promotional allowances		(4,870	)		(4,384	)		(13,769	)		(12,844	)

Net operating revenues		32,623			38,727			94,269			108,639


OPERATING EXPENSES:
Casino		9,725			10,346			28,673			30,314
Rooms		2,355			2,802			7,273			8,390
Food and beverage		5,184			6,339			15,588			18,759
Other		1,340			2,003			3,654			5,886
Selling, general and administrative		7,446			8,034			22,099			24,760
Depreciation		4,106			3,957			12,279			11,657
Change in fair value of life insurance contracts		(486	)		550			(561	)		941
(Gain) loss on disposition of assets		8			(7	)		62			78

Total operating expenses		29,678			34,024			89,067			100,785

OPERATING INCOME		2,945			4,703			5,202			7,854


OTHER (INCOME) EXPENSE:
Interest expense		3,767			4,209			11,570			12,674
Interest income		(4	)		(148	)		(58	)		(648	)
Gain on early retirement of debt		—			—			(5,546	)		—

Total other expense		3,763			4,061			5,966			12,026

NET INCOME (LOSS)	$	(818	)	$	642		$	(764	)	$	(4,172	)

The accompanying condensed notes are an integral part of these consolidated financial statements.

CIRCUS AND ELDORADO JOINT VENTURE

(doing business as Silver Legacy Resort Casino)

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ EQUITY

(In thousands)

(Unaudited)


	Galleon, Inc.			Eldorado Resorts, LLC			Total
BALANCE, January 1, 2009 (1)	$	55,239		$	65,239		$	120,478
Net loss		(382	)		(382	)		(764	)

BALANCE, September 30, 2009 (1)	$	54,857		$	64,857		$	119,714

(1)	Balances include Accumulated Other Comprehensive Income related to a minimum pension liability adjustment totaling ($432,000) comprised of ($216,000) each for Galleon, Inc. and Eldorado Resorts, LLC.

The accompanying condensed notes are an integral part of these consolidated financial statements.

CIRCUS AND ELDORADO JOINT VENTURE

(doing business as Silver Legacy Resort Casino)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(764	)	$	(4,172	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		12,279			11,657
Amortization of debt discounts and issuance costs		467			509
Loss on disposition of assets		62			78
Gain on early retirement of debt		(5,546	)		—
Increase in accrued pension cost		681			743
Provision for doubtful accounts		397			502
(Increase) decrease in cash value of insurance policies in excess of premiums paid		(561	)		943
Changes in current assets and current liabilities:
Accounts receivable		315			930
Inventories		51			96
Prepaid expenses and other		212			(478	)
Accounts payable		(881	)		(301	)
Accrued interest		(4,195	)		(4,062	)
Accrued and other liabilities		463			419

Net cash provided by operating activities		2,980			6,864


CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets		9			147
(Increase) decrease in other assets		11			(844	)
Capital expenditures, net of construction payable		(2,298	)		(9,094	)

Net cash used in investing activities		(2,278	)		(9,791	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance costs		(10	)		(14	)
Payments on retirement of long-term debt		(11,438	)		—
Distributions to partners		—			(10,000	)

Net cash used in financing activities		(11,448	)		(10,014	)


CASH AND CASH EQUIVALENTS:
Net decrease for the period		(10,746	)		(12,941	)
Balance, beginning of period		43,765			52,501

Balance, end of period	$	33,019		$	39,560


SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during period for interest	$	15,299		$	16,227

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Payables for purchase of property and equipment	$	69		$	32

The accompanying condensed notes are an integral part of these consolidated financial statements.

CIRCUS AND ELDORADO JOINT VENTURE

(doing business as Silver Legacy Resort Casino)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Summary of Significant Accounting Policies and Basis of Presentation

Principles of Consolidation/Operations

Effective March 1, 1994, Eldorado Limited Liability Company (a Nevada limited liability company owned and controlled by Eldorado Resorts, LLC) (“ELLC”) and Galleon, Inc. (a Nevada corporation owned and controlled by MGM MIRAGE and previously owned and controlled by Mandalay Resort Group (“Mandalay”) (“Galleon” and, collectively with ELLC, the “Partners”), entered into a joint venture agreement to establish Circus and Eldorado Joint Venture (the “Partnership”), a Nevada general partnership. The Partnership owns and operates a casino and hotel located in Reno, Nevada (“Silver Legacy”), which began operations on July 28, 1995. ELLC contributed land to the Partnership with a fair value of $25.0 million and cash of $26.9 million for a total equity investment of $51.9 million. Galleon contributed cash to the Partnership of $51.9 million to comprise their total equity investment. Each partner has a 50% interest in the Partnership.

On April 25, 2005, a wholly owned subsidiary of MGM MIRAGE (“MGM”) was merged with and into Mandalay as a result of which Mandalay became a wholly owned subsidiary of MGM MIRAGE. With the consummation of the merger, Galleon, Inc. became an indirect wholly-owned subsidiary of MGM MIRAGE.

The condensed consolidated financial statements include the accounts of the Partnership and its wholly owned subsidiary, Silver Legacy Capital Corp. (“Capital”). Capital was established solely for the purpose of serving as a co-issuer of $160.0 million principal amount of 10¹/8% mortgage notes due 2012 co-issued by the Partnership and Capital and, as such, Capital does not have any operations, assets, or revenues. All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, all of which are normal and recurring, necessary to present fairly the financial position of the Partnership as of September 30, 2009, and the results of operations for the three and nine months ended September 30, 2009 and 2008 and cash flows for the nine months ended September 30, 2009 and 2008. The results of operations for such periods are not necessarily indicative of the results to be expected for a full year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2008.

Use of Estimates

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Those principles require the Partnership’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates incorporated into our consolidated financial statements include estimated useful lives for depreciable and amortizable assets, the estimated allowance for doubtful accounts receivable, estimated cash flows in assessing the recoverability of long-lived assets, our self-insured liability reserves, players’ club liabilities, contingencies and litigation, claims and assessments. Actual results could differ from these estimates.

Recently Issued Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement No. 168, the FASB Accounting Standards Codification^TM and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168”) which was subsequently codified into FASB Accounting Standards Codification (“ASC”) 105, Generally Accepted Accounting Principles (“ASC 105”). ASC 105 establishes the FASB Accounting Standards Codification^TM (“Codification”) to become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. However, the Codification will not change GAAP, except in limited circumstances, and the content of the Codification will carry the same level of GAAP authority when effective. The GAAP hierarchy will be modified to include only two levels of GAAP: authoritative and nonauthoritative. ASC 105 is effective in the first interim and annual periods ending after September 15, 2009. This pronouncement had no material effect on our unaudited consolidated financial statements upon adoption other than changes in references to GAAP.

In September 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 is a revision to FASB Interpretation No. 46, Consolidation of Variable Interest Entities and was subsequently codified into ASC 810. The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. ASC 810 is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. We are currently evaluating the requirements of SFAS 167 and have not determined the impact, if any, that the adoption will have on our consolidated financial statements.

Reclassifications

The condensed consolidated financial statements for the three and nine months ended September 30, 2008 reflect the reclassification of the change in the fair value of life insurance contracts that fund a portion of our supplemental executive retirement plan from other expense to operating expense on the Partnership’s Statements of Operations. This reclassification has no effect on previously reported net income and conforms to the current year presentation.

Subsequent Events

During the three months ended June 30, 2009, we adopted Statement No. 165, Subsequent Events (“SFAS 165”) prior to our adoption of the Codification. SFAS 165, subsequently codified into ASC 855, established general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued. The adoption of this standard did not have a material impact on our consolidated financial statements, but may affect the disclosure of subsequent events in the footnotes thereto.

We have evaluated subsequent events from October 1, 2009 through November 13, 2009, which is the issuance date of these unaudited condensed consolidated financial statements.

Note 2. Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Accordingly, fair value is a market based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair values as follows:

•

Level 1: Inputs are based upon quoted prices (unadjusted) in active markets for identical assets or liabilities which are accessible as of the measurement date.

•

Level 2: Inputs are based upon quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations for the asset or liability that are derived principally from or corroborated by market data for which the primary inputs are observable, including forward interest rates, yield curves, credit risk and exchange rates.

•

Level 3: Inputs for the valuations are unobservable and are based on management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques such as option pricing models and discounted cash flow models.

The Partnership’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and debt. Management believes that the carrying value of cash and cash equivalents, accounts receivable, and accounts payable are representative of their respective fair values due to the short maturities of these instruments. We determined the fair value of the Partnership’s 10¹/8% mortgage notes using Level 1 inputs. The fair value of the Partnership’s 10¹/8% mortgage notes, based on quoted market prices, was approximately $126.4 million at September 30, 2009.

Note 3. Long-Term Debt

Long-term debt consisted of the following (in thousands):

On March 5, 2002, the Partnership and Capital (collectively, the “Issuers”) co-issued $160.0 million principal amount of senior secured mortgage notes due 2012 (the “Notes”). Concurrent with issuing the Notes, the Partnership entered into a senior secured credit facility (the “Credit Facility”) for $40.0 million. The Credit Facility originally provided for a $20.0 million senior secured revolving credit facility and a $20.0 million five-year term loan facility, each of which provided for the payment of interest at floating rates based on LIBOR plus a spread. The proceeds from the Notes, together with $26.0 million in borrowings under the Credit Facility, were used to repay $150.2 million representing all of the indebtedness outstanding under a prior bank credit facility and to fund $30.0 million of distributions to the Partners. In addition, the remaining proceeds along with operating cash flows were used to pay $6.3 million in related fees and expenses of the transactions. These fees were capitalized and are included in other assets. On November 4, 2003, the Partnership, U.S. Bank, N.A. and Bank of America, N.A., executed an amendment to the Credit Facility which reduced the revolving facility to $10.0 million. On March 28, 2008, the Partnership and Bank of America, N.A. executed an amendment reducing the revolving facility to $1.0 million.

The Notes are senior secured obligations which rank equally with all of the Partnership’s outstanding senior debt and are senior to any subordinated debt. The Notes are secured by a security interest in the Issuers’ existing and future assets, which is junior to a security interest in such assets securing the Partnership’s obligations on the Credit Facility and any refinancings of such facility that are permitted pursuant to the terms of the Notes. Each of the Partners executed a pledge of all of its partnership interests in the Partnership to secure the Notes, which is junior to a pledge of such partnership interests to secure the Partnership’s obligations on the Credit Facility and any refinancings of such facility that are permitted pursuant to the terms of the Notes. The Notes mature on March 1, 2012 and bear interest at the rate of 10¹/8% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2002.

The Notes and the Credit Facility contain various restrictive covenants. The covenants included in the Notes and/or the Credit Facility require the maintenance of certain financial ratios and impose limitations on the ability of the Partnership, among other things, to incur additional debt or liens, engage in transactions with affiliates, dispose of property, make distributions to its partners of property or merge, consolidate or sell assets.

During the nine months ended September 30, 2009, there was no indebtedness outstanding under the Credit Facility. As of September 30, 2009, the Partnership was not in compliance with the financial covenants in the Credit Facility. As described below, such noncompliance was prospectively waived by an amendment, dated August 12, 2008, to the Credit Facility. As a result of the covenant noncompliance at September 30, 2009, the Partnership is

precluded from utilizing the Credit Facility until it has completed a fiscal quarter as to which it is in compliance with the facility’s covenants (including the financial covenants as though the below-described waiver had not been given). On August 12, 2008, the Partnership and Bank of America, N.A. executed an amendment to the Credit Facility which retroactively waived compliance with the Credit Facility’s financial covenants in respect of the quarters ended March 31, 2008 and June 30, 2008 and prospectively waives compliance with the Credit Facility’s financial covenants for each subsequent quarter through 2009, provided that no additional credit is extended under the Credit Facility during a quarter for which the waiver is relied upon. The Partnership’s inability to satisfy the covenant ratios in the Credit Facility does not constitute a default under the indenture relating to the Notes. As of September 30, 2009, the Partnership was in compliance with the covenants in the indenture relating to the Notes.

On January 28, 2009, the Partnership executed an amendment to extend the Credit Facility’s maturity date for an additional year to March 30, 2010. This amendment also allows for the unconditional expenditure of up to $20.0 million to purchase outstanding Notes provided that no proceeds of loans under the Credit Facility are used for this purpose. The aforementioned financial covenants waiver remains in effect throughout 2009.

In February 2009, the Partnership purchased and retired $17.2 million principal amount of the Notes. The total purchase price of the Notes was approximately $11.4 million, resulting in a gain of approximately $5.5 million, net of unamortized debt issuance costs. The repurchase of the Notes reduced the amount of Notes outstanding to $142.8 million. The transaction was funded by available invested cash reserves. The Partnership’s executive committee has authorized the Partnership to spend up to an additional $8.6 million (representing the additional amount of funds other than proceeds of loans under the Credit Facility permitted by the terms of the Credit Facility to be unconditionally expended) for the repurchase of Notes. It is anticipated that any additional Notes acquired prior to maturity will be acquired through open market purchases.

Note 4. Related Parties

An affiliate of each of our Partners owns and operates a casino attached and adjacent to Silver Legacy. Our Partners may be deemed to be in a conflict of interest position with respect to decisions they make relating to the Partnership as a result of the interests their affiliates have in the Eldorado Hotel & Casino and Circus Circus Hotel & Casino-Reno, respectively.

Note 5. Supplemental Executive Retirement Plan

Effective January 1, 2002, the Partnership adopted a Supplemental Executive Retirement Plan (“SERP”) for a select group of highly compensated management employees. The SERP provides for a lifetime benefit at age 65, based on a formula which takes into account a participant’s highest annual compensation, years of service, and executive level. The SERP also provides an early retirement benefit at age 55 with at least four years of service, a disability provision, and a lump sum death benefit. While the SERP is an unfunded plan, the Partnership is informally funding the plan through life insurance contracts on the participants. The Partnership anticipates that its periodic pension cost for the year ending December 31, 2009 will be approximately $1.0 million, of which $0.7 million had been accrued as of September 30, 2009.

Note 6. Partnership Agreement

Concurrent with the issuance of the Notes on March 5, 2002, the Partnership’s partnership agreement was amended and restated in its entirety and was further amended in April 2002 (the “Partnership Agreement”). The Partnership Agreement provides for, among other things, profits and losses to be allocated to the Partners in proportion to their percentage interests, separate capital accounts to be maintained for each Partner, provisions for management of the Partnership and payment of distributions and bankruptcy and/or dissolution of the Partnership. The April 2002 amendments were principally (i) to provide equal voting rights for ELLC and Galleon with respect to approval of the Partnership’s annual business plan and the appointment and compensation of the general manager, and (ii) to give each Partner the right to terminate the general manager.

Note 7. Commitments and Contingencies

In March 2008, the Nevada Supreme Court ruled, in a case involving another casino company, that food and non-alcoholic beverages purchased for use in providing complimentary meals to customers and to employees were exempt from sales and use tax. The Partnership had previously paid use tax on these items and has generally filed for refunds for the periods from February 2000 to February 2008 related to this matter. The aggregate amount for which a refund claim is pending is approximately $1.5 million.

The Nevada Department of Taxation (the “Department”) filed a petition for rehearing, which the Nevada Supreme Court announced in July 2008 it would not grant. As of September 30, 2009, the Partnership had not recorded income related to this matter because the refund claims are subject to audit and it is unclear whether the Department will pursue alternative legal theories in connection with certain issues raised in the Supreme Court case in any audit of the refund claims. However, the Partnership is claiming the exemption on sales and use tax returns for periods after February 2008 in light of the Nevada Supreme Court decision.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Effective March 1, 1994, Eldorado Limited Liability Company (“ELLC”), a Nevada limited liability company owned and controlled by Eldorado Resorts LLC, and Galleon, Inc. (“Galleon”), a Nevada corporation now owned and controlled by MGM MIRAGE, entered into a joint venture agreement to establish the Partnership for the purpose of constructing, owning and operating Silver Legacy. Capital, a wholly owned subsidiary of the Partnership, was incorporated for the sole purpose of serving as a co-issuer of the $160.0 million principal amount of 10¹/8% mortgage notes due 2012 co-issued by the Partnership and Capital, and does not have any operations, assets or revenues.

On July 28, 1995, Silver Legacy commenced operations as a hotel-casino in downtown Reno, Nevada. Silver Legacy is a leader within the Reno market, offering the largest number of table games and the second largest number of slot machines and hotel rooms of any property in the Reno market. Silver Legacy’s net operating revenues and results of operations are derived largely from gaming activities. In an effort to enhance our gaming revenues, we attempt to maximize the use of our gaming facilities at Silver Legacy by providing a well-balanced casino environment that contains a mix of games attractive to multiple market segments. Rooms, food and beverage also contribute a large portion of our net revenues.

Our operating results are highly dependent on the volume of customers visiting and staying at our resort. Key volume indicators include table games drop and slot handle, which refer to amounts wagered by our customers. The amount of volume we retain, which is not fully controllable by us, is recognized as casino revenues and is referred to as our win or hold. In addition, hotel occupancy and price per room, or average daily rate (“ADR”), are key indicators for our hotel business.

Significant Factors Affecting Results of Operations

National Economic Downturn

Declining real estate values, lower consumer confidence, increased unemployment, and the credit market crisis have precipitated a downturn in the national economy and influenced consumers’ discretionary spending. We believe the weakness and volatility of the economy have had a significant negative impact on the gaming and tourism industries, and, as a result, our operating performance. In response to the difficult economic environment, our management has implemented cost savings measures and will continue to identify opportunities to further reduce expenses and maximize cash flows. We believe the national economic downturn will continue to negatively affect our operating results for some period of time; however, we are uncertain as to the duration and magnitude of its impact.

Expansion of Native American Gaming

A significant portion of Silver Legacy’s revenues and results of operations are generated from patrons who are residents of northern California, and, as such, our results of operations have been adversely impacted by the growth in Native American gaming in northern California. Many existing Native American gaming facilities in northern California are modest compared to Silver Legacy. However, a number of Native American tribes have established large-scale gaming facilities in California and many Native American tribes have announced that they are in the process of expanding, developing, or are considering establishing, large-scale hotel and gaming facilities in northern California. As Native American gaming operations have expanded in northern California, we believe the increasing competition generated by these gaming operations has negatively impacted principally drive-in, day-trip visitor traffic from our main feeder markets in northern California.

Under their current compacts, most Native American tribes in California may operate up to 2,000 slot machines, and up to two gaming facilities may be operated on any one reservation. However, under action taken by the National Indian Gaming Commission, gaming devices similar in appearance to slot machines, but which are deemed to be technological enhancements to bingo style gaming, are not subject to such limits and may be used by tribes without state permission. The number of slot machines the tribes are allowed to operate may increase as a result of any new or amended compacts the tribes may enter into with the State of California that receive the requisite approvals, such as has been the case with respect to a number of new or amended compacts which have been executed and approved.

In April 2007, the California Senate approved amendments to the compacts of five Native American tribes. In June 2007, the California Assembly approved four of these five amendments which increased the number of slot machines permitted to be operated by two of the four tribes from 2,000 to 5,000 each and increased the number that may be operated by each of the other two tribes from 2,000 to 7,500. In February 2008, California voters approved these four increases with their approval of gaming referendums on their statewide ballot. Management believes that the increase in the number of slot machines permitted to be operated by these four tribes will not significantly impact Silver Legacy’s operations since the casinos operated by those tribes are located in southern California.

In September 2008, the Governor of California signed a bill, which was subsequently approved by the Bureau of Indian Affairs, ratifying an amendment to the compact of a tribe located in northern California to increase from 2,000 to 5,000 the number of slot machines that may be operated by this tribe. This tribe opened a casino located 20 miles east of Sacramento in December 2008 that currently offers 2,000 slot machines. The amendment of the compact of this tribe, and new compacts or modifications to existing compacts of other tribes that currently operate or may operate casinos in central or northern California, to provide similar increases to the number of slot machines permitted to be operated, could have a material adverse impact on our operations, depending on the number of such tribes securing new or modified compacts, the number of additional machines permitted and the locations of the properties utilizing the additional machines.

Based on a United States District Court ruling and court order, in October 2009, the California Gambling Control Commission issued licenses for a total of approximately 3,500 additional slot machines to 11 tribes. This new issuance of slot machine licenses resulted from the Ninth Circuit Court of Appeal’s rejection of the state’s request to delay a federal judge’s ruling regarding the legality of the imposed limitation on the number of slot machines tribes that signed gaming compacts in 1999 are allowed to operate. The Governor of California has appealed the judge’s decision and the case is expected to be heard in February 2010.

We believe the continued growth of Native American gaming establishments, including the addition of hotel rooms and other amenities, could continue to place additional competitive pressure on our operations. While we cannot predict the extent of any future impact, it could be significant.

Bowling Tournaments Within the Reno Market

The National Bowling Stadium, located one block from Silver Legacy, is one of the largest bowling complexes in North America and has been selected to host multi-month tournaments in Reno two out of every three years through 2018. Through a one-time agreement, the National Bowling Stadium also will host multi-month bowling

tournaments in Reno in 2011, usually an off-year for Reno. Historically, these bowling tournaments have attracted a significant number of visitors to the Reno market and have benefited business in the downtown area, including Silver Legacy. In 2007, the United States Bowling Congress (“USBC”) Open Tournament began in mid-February and continued through June. Both men and women bowlers participated in the USBC Open Tournament which attracted approximately 80,000 bowlers to the Reno market during the tournament period. The USBC Women’s Tournament, which attracted approximately 55,000 bowlers to the Reno market in 2006, returned in late March 2009. This tournament continued through the end of June 2009 and brought approximately 40,500 bowlers during the 2009 period. While the traffic generated by this tournament benefited the Reno market during the second quarter of 2009, the positive impact was not as significant as in previous years due to a decline in bowler attendance combined with general decreases in consumers’ discretionary spending. The USBC Open Tournament will return to the Reno market in 2010.

Summary Financial Results

The following table highlights the results of our operations (dollars in thousands) for the periods indicated:


	Three months ended September 30, 2009			Three months ended September 30, 2008		Percent Change		Nine months ended September 30, 2009			Nine months ended September 30, 2008			Percent Change
Net revenues	$	32,623		$	38,727	(15.8	)%	$	94,269		$	108,639		(13.2	)%
Operating expenses		29,678			34,024	(12.8	)		89,067			100,785		(11.6	)
Operating income		2,945			4,703	(37.4	)		5,202			7,854		(33.8	)
Net income (loss)		(818	)		642	(227.4	)		(764	)		(4,172	)	(81.7	)

Net Revenues. During the three and nine months ended September 30, 2009 compared to the same prior year periods, net revenues decreased primarily due to declines in casino and rooms revenues, and to a lesser extent, food, beverage and entertainment revenues. We believe the main contributors to the declines in net revenues during both periods were factors impacting Reno’s gaming and tourism market as a whole, including the weak national economy, declines in city-wide convention room nights and, specifically within our feeder markets in northern California, high unemployment rates, the troubled housing market, and the continued increase in competition generated by Native American gaming in northern California.

Operating Income and Net Income (Loss). During the three and nine months ended September 30, 2009 compared to the same prior year periods, operating income decreased as a result of lower departmental revenues. Significant savings were realized during both periods in 2009 compared to the same periods in 2008 as a result of efforts to reduce payroll and benefits, advertising costs, administrative expenditures and other operating expenses. However, increased promotional allowance costs allocated to the casino department, both in absolute dollars and as a percentage of revenues, in addition to lower room rates adversely impacted our operating results and profit margins throughout each of the 2009 periods compared to the same periods in 2008. Depreciation expense rose due to additional depreciation associated with new capital purchases and contributed to a higher percentage decrease in operating income during the three and nine months ended September 30, 2009 compared to the same prior year periods.

Net income decreased during the three months ended September 30, 2009 compared to the same prior year period as a result of the same factors impacting operating income. During the nine months ended September 30, 2009 compared to the same prior year period, our net loss decreased due to a $5.5 million gain, net of unamortized debt issuance costs and discounts, on the early retirement of $17.2 million principal amount of our 10¹/8% mortgage notes.

Revenues

The following table highlights the components of net operating revenues (dollars in thousands) for the periods indicated:


	Three months ended September 30, 2009			Three months ended September 30, 2008			Percent Change		Nine months ended September 30, 2009			Nine months ended September 30, 2008			Percent Change
Casino	$	18,601		$	21,129		(12.0	)%	$	53,669		$	57,844		(7.2	)%
Rooms		8,723			10,158		(14.1	)		24,320			29,043		(16.3	)
Food and beverage		8,082			9,098		(11.2	)		24,362			26,668		(8.6	)
Other		2,087			2,726		(23.4	)		5,687			7,928		(28.3	)
Promotional allowances		(4,870	)		(4,384	)	11.1			(13,769	)		(12,844	)	7.2

Casino Revenues. During the three and nine months ended September 30, 2009 compared to the same prior year periods, casino revenues declined due to lower table games drop and table games hold along with decreases in slot handle. Table games drop and slot handle declined 14.2% and 10.9%, respectively, during the third quarter of 2009 compared to the same prior year period, and declined 13.1% and 7.1%, respectively, during the nine months ended September 30, 2009 compared to the same prior year period. Historically, the USBC Women’s Tournament has attracted more slot players, as compared to the USBC Open Tournament, and has typically had a greater positive impact on slot volume during associated tournament periods. As a result, slot handle benefited during the second quarter of 2009 compared to the same prior year period from the increased visitation generated by the USBC Women’s Tournament. However, this positive impact was offset by the decreases in casino volume and revenues during the remaining 2009 periods compared to the same periods in 2008. These decreases in volume were associated with the previously discussed factors affecting net revenues which have negatively impacted the number of trips and spending levels of our customers throughout the current year.

Rooms Revenues. Our ADR and occupancy percentages were $70.57 and 72.03% respectively, for the three months ended September 30, 2009 compared to $79.96 and 74.00%, respectively, for the three months ended September 30, 2008. Our ADR and occupancy percentages were $67.66 and 70.30% respectively, for the nine months ended September 30, 2009 compared to $79.16 and 71.53%, respectively, for the nine months ended September 30, 2008. While the USBC Women’s Tournament drove hotel occupancy during the second quarter of 2009, this growth was offset by declines in hotel occupancy during the first and third quarters of 2009 compared to the same prior year periods. Additionally, our ADR declined throughout 2009 compared to 2008 as a result of efforts to maximize occupancy levels during slow periods. These decreases in occupancy and ADR resulted from increased competition, both locally and within our feeder markets, along with lower tourism visitor counts and convention room nights associated with the weak economy.

Food and Beverage Revenues. Food and beverage revenues declined during the three and nine months ended September 30, 2009 compared to the same prior year periods as a result of decreases in guest counts at a majority of our food outlets which we believe was attributable to the same factors affecting net revenues. Our average restaurant check decreased during the three and nine months ended September 30, 2009 compared to the same prior year periods due to selective menu pricing revisions in an effort to promote our restaurants and incentivize customers and also contributed to the decline in food and beverage revenues.

Other Revenues. Other revenues are comprised of revenues generated by our retail outlets, entertainment, other miscellaneous items, and our share of ballroom revenues. During the three and nine months ended September 30, 2009 compared to the same prior year periods, other revenues decreased principally due to lower entertainment revenues associated with a decline in scheduled concert dates throughout the current year periods. Retail revenues fell during each of the 2009 periods compared to the 2008 periods due to the same factors affecting net revenues. Ballroom revenues, which were generated by the ballroom facility located across from Silver Legacy on a special events plaza which was previously owned by our affiliates and donated to the City of Reno in January 2007, declined during the three and nine months ended September 30, 2009 compared to the same prior year periods as a result of fewer conventions utilizing the facility during the current year periods. The ballroom, which opened in mid-February 2008, is operated and managed by Silver Legacy together with the adjoining Eldorado and Circus Circus properties.

Promotional Allowances. Promotional allowances, expressed as a percentage of gross revenues, increased to 13.0% and 12.7%, respectively, during the three and nine months ended September 30, 2009 compared to 10.2% and 10.6%, respectively, during the three and nine months ended September 30, 2008. These increases were attributable to increases in complimentary rooms, food, concert tickets and retail promotional offers to our casino customers throughout the current year periods in an effort to drive visitation, maintain customer loyalty, generate casino play and utilize available room inventory.

Operating Expenses

The following table highlights our operating expenses (dollars in thousands) for the periods indicated:


	Three months ended September 30, 2009			Three months ended September 30, 2008			Percent Change		Nine months ended September 30, 2009			Nine months ended September 30, 2008		Percent Change
Casino	$	9,725		$	10,346		(6.0	)%	$	28,673		$	30,314	(5.4	)%
Rooms		2,355			2,802		(16.0	)		7,273			8,390	(13.3	)
Food and beverage		5,184			6,339		(18.2	)		15,588			18,759	(16.9	)
Other		1,340			2,003		(33.1	)		3,654			5,886	(37.9	)
Selling, general and Administrative		7,446			8,034		(7.3	)		22,099			24,760	(10.7	)
Depreciation		4,106			3,957		3.8			12,279			11,657	5.3
Change in fair value of life insurance contracts		(486	)		550		(188.4	)		(561	)		941	(160.0	)
Loss on disposition of assets		8			(7	)	(214.3	)		62			78	(20.5	)

Casino Expenses. Casino expenses declined during the three and nine months ended September 30, 2009 compared to same prior year periods primarily due to decreases in casino payroll, repairs and maintenance, gaming taxes, bad debt expense, special event costs, and the liability associated with unredeemed players’ club complimentaries in conjunction with lower casino volume along with efforts to reduce variable expenditures. These decreases were partially offset by increased direct mail costs and promotional allowances related to the cost of rooms, food, beverage and retail complimentaries allocated to the casino department which rose as a result of an increase in direct mail offers throughout the 2009 periods to customers within our casino database.

Rooms Expenses. Rooms expenses declined during the three and nine months ended September 30, 2009 compared to the same prior year periods primarily due to decreases in departmental payroll, repairs and maintenance and laundry expense. Despite successful efforts to reduce costs on a per occupied room basis, the profit margin in the rooms department was negatively impacted by declines in our ADR as competition increased for a reduced number of visitors to the Reno market throughout the 2009 periods compared to the same 2008 periods.

Food and Beverage Expenses. During the three and nine months ended September 30, 2009 compared to the same prior year periods, food and beverage expenses decreased mainly due to declines in food costs, both in absolute dollars and as a percentage of revenues. Cost reduction efforts enabled the food department to increase its profit margin significantly during both periods in 2009 compared to the same 2008 periods. Beverage expenses decreased during the three and nine months ended September 30, 2009 compared to the same prior year periods in conjunction with the declines in beverage revenues.

Other Operating Expenses. Other operating expenses are comprised of expenses associated with the operation of our retail outlets and the ballroom along with the entertainment department’s production costs and professional entertainers’ fees. Other operating expenses decreased during the three and nine months ended September 30, 2009 compared to the same prior year periods primarily as a result of a less aggressive concert schedule.

Selling, General and Administrative Expenses. During the three and nine months ended September 30, 2009 compared to the same prior year periods, selling, general and administrative expenses decreased mainly due to substantial reductions in advertising expenditures, lower payroll among administrative and facilities departments, decreased utilities costs, fewer credit card discounts associated with declining room revenues, and declines in building repairs and maintenance, professional services and human resources departmental expenditures.

Depreciation Expense. Depreciation expense increased during the three and nine months ended September 30, 2009 compared to the same prior year periods primarily due to higher depreciation associated with new equipment purchases in 2009.

Change in Fair Value of Life Insurance Contracts. These amounts relate to the change in fair value of life insurance contracts that fund a portion of our supplemental executive retirement plan. During the three and nine months ended September 30, 2009, the fair value of these life insurance contracts increased as compared to the same prior year periods.

Other (Income) Expense

Other (income) expense is comprised of interest expense, interest income and the gain on the early retirement of debt. In February 2009, we purchased and retired $17.2 million principal amount of our 10¹/8% mortgage notes. The total purchase price of the notes was approximately $11.4 million, resulting in a gain of approximately $5.5 million, net of unamortized offering costs and discounts. As a result of this transaction, which reduced the principal amount of notes outstanding to $142.8 million, interest expense decreased during the three and nine months ended September 30, 2009 compared to the same prior year periods and interest income decreased due to a decline in our invested cash reserves subsequent to the purchase of notes.

Liquidity and Capital Resources

During the nine months ended September 30, 2009, we generated cash flows from operating activities of $3.0 million compared to $6.9 million during the same prior year period. The $3.9 million decrease in cash flows from operating activities was primarily due to the decline in operating income along with various changes in balance sheet accounts which occurred in the normal course of business. As of September 30, 2009, cash and cash equivalents were $33.0 million, sufficient for normal operating requirements.

Cash used in investing activities for the nine months ended September 30, 2009 was $2.3 million compared to $9.8 million for the nine months ended September 30, 2008 and related primarily to capital expenditures for various renovation projects and equipment purchases. Capital expenditures were higher in 2008 due to equipment purchases for the city-owned ballroom facility located across from Silver Legacy on a special events plaza which was previously owned by our affiliates and donated to the City of Reno in January 2007. The ballroom opened in February 2008. Our executive committee has approved $3.8 million in capital expenditures for 2009, of which $2.2 million had been incurred at September 30, 2009.

Cash used in financing activities during the nine months ended September 30, 2009 was $11.4 million which represented a payment for the purchase and retirement of $17.2 million principal amount of our 10¹/8% mortgage notes. Cash used in financing activities in 2008 was $10.0 million which represented a special distribution of $5.0 million to each partner. Additionally, amounts totaling $10,000 were paid during both the 2009 and 2008 periods representing costs associated with extensions of the maturity date of our credit facility.

In July 2009, we renewed our general and liability insurance policies each covering a 12-month period. Under these policies, the Partnership and the owner of the adjacent Eldorado property, Eldorado Resorts LLC (which is an affiliate of ELLC), have combined earthquake coverage of $350 million and combined flood coverage of $250 million. In the event that an earthquake causes damage only to the Partnership’s property, the Partnership is eligible to receive up to $350 million in coverage depending on the replacement cost. However, in the event that both properties are damaged, the Partnership is entitled to receive, to the extent of any replacement cost incurred, up to $220 million of the coverage amount (based on our percentage of the total earthquake coverage) and the portion of the other $130 million, if any, remaining after satisfaction of the claim of Eldorado Resorts LLC with respect to its adjoining property. In the event that a flood causes damage only to the Partnership’s property, the Partnership is eligible to receive up to $250 million in coverage, depending on the replacement cost. However, in the event that both properties are damaged, the Partnership is entitled to receive, to the extent of any replacement cost incurred, up to $220 million of the coverage amount (based on our percentage of the total flood coverage) and the portion of the other $30 million, if any, remaining after satisfaction of the claim of Eldorado Resorts LLC with respect to its adjoining property.

Our insurance policy also includes combined terrorism coverage for Silver Legacy and the adjoining Eldorado property up to $500 million. In the event that an act of terrorism causes damage only to the Partnership’s property, the Partnership is eligible to receive up to $500 million in coverage, depending on the replacement cost. However, in the event that both properties are damaged, the Partnership is entitled to receive, to the extent of any replacement

cost incurred, up to $280 million of the coverage amount (based on our percentage of the total reported property values) and the portion of the other $220 million, if any, remaining after satisfaction of the claim of Eldorado Resorts LLC with respect to its adjoining property. This policy also covers an additional property located in Shreveport, LA which is owned by an affiliate of Eldorado Resorts LLC. In the event that an act of terrorism causes damage to all three properties, the Partnership is entitled to receive, to the extent of any replacement cost incurred, up to $200 million of the coverage amount (based on our percentage of the total reported property values) and the portion of the other $300 million, if any, remaining after satisfaction of the claims with respect to the other two properties.

The Partnership’s partnership agreement, as currently in effect, provides that, subject to any contractual restrictions to which the Partnership is subject, including the indenture relating to the Notes, and prior to the occurrence of a “Liquidating Event,” the Partnership will be required to make distributions to its partners as follows:

(i) The estimated taxable income of the Partnership allocable to each partner multiplied by the greater of the maximum marginal federal income tax rate applicable to individuals for such period or the maximum marginal federal income tax rate applicable to corporations for such period (as of the date hereof both rates were 35%); provided, however, that if the State of Nevada enacts an income tax (including any franchise tax based on income), the applicable tax rate for any tax distributions subsequent to the effective date of such income tax shall be increased by the higher of the maximum marginal individual tax rate or corporate income tax rate imposed by such tax (after reduction for the federal tax benefit for the deduction of state taxes, using the maximum marginal federal individual or corporate rate, respectively).

(ii) Annual distributions of remaining “Net Cash From Operations” in proportion to the percentage interests of the partners.

(iii) Distributions of “Net Cash From Operations” in amounts or at times that differ from those described in (i) and (ii) above, provided in each case that both partners agree in writing to the distribution in advance thereof.

As defined in the partnership agreement, the term “Net Cash From Operations” means the gross cash proceeds received by the Partnership, less the following amounts: (i) cash operating expenses and payments of other expenses and obligations of the Partnership, including interest and scheduled principal payments on Partnership indebtedness, including indebtedness owed to the partners, if any, (ii) all capital expenditures made by the Partnership, and (iii) such reasonable reserves as the partners deem necessary in good faith and in the best interests of the Partnership to meet its anticipated future obligations and liabilities (less any release of reserves previously established, as similarly determined).

The Partnership’s partnership agreement provides that the partners shall not be permitted or required to contribute additional capital to the Partnership without the consent of the partners, which consent may be given or withheld in each partner’s sole and absolute discretion.

We believe we have sufficient capital resources to meet all of our obligations for the foreseeable future. These obligations include existing cash obligations, funding of capital commitments and servicing our debt. Our future sources of liquidity are anticipated to be from our operating cash flow and cash reserves.

10¹/8% Mortgage Notes

On March 5, 2002, the Partnership and Capital co-issued $160.0 million principal amount of 10¹/8% senior secured mortgage notes due 2012. The notes are senior secured obligations which rank equally with all of the Partnership’s other outstanding senior debt and senior to any subordinated debt. The notes are secured by a security interest in the Issuers’ existing and future assets, other than certain licenses which may not be pledged under applicable law, which is junior to a security interest in such assets securing the Partnership’s obligations under its credit facility and any refinancings of such facility that are permitted pursuant to the terms of the notes. Each of the Partnership’s partners executed a pledge of all of its partnership interest in the Partnership to secure the notes, which is junior to a pledge of such partnership interest to secure the Partnership’s obligations on the credit facility and any refinancings of such facility that are permitted pursuant to the terms of the indenture relating to the notes. The notes mature on March 1, 2012 and bear interest at the rate of 10¹/8% per annum, payable semi-annually in arrears on

March 1 and September 1 of each year, commencing on September 1, 2002. At September 30, 2009, we were in compliance with all of the covenants in the indenture related to the notes.

In February 2009, the Partnership purchased and retired $17.2 million principal amount of its 10¹/8% mortgage notes. The total purchase price of the notes was approximately $11.4 million, resulting in a gain of approximately $5.5 million, net of unamortized debt issuance costs and discounts. The repurchase of the notes reduced the amount of notes outstanding to $142.8 million. The transaction was funded by available invested cash reserves. The Partnership’s executive committee has authorized the Partnership to spend up to an additional $8.6 million for the repurchase of notes. It is anticipated that any additional notes acquired prior to their maturity will be through open market purchases.

Senior Secured Credit Facility

We have a credit facility (as amended, the “Credit Facility”) that provides a $1.0 million revolving facility which was reduced from $10.0 million during the first quarter of 2008. Under the Credit Facility, as currently in effect, we must maintain a maximum ratio of total debt to EBITDA of 4.75 to 1.00 and are also required to maintain a minimum ratio of EBITDA to fixed charges of 1.10 to 1.00 at all times. In addition, the Credit Facility limits capital expenditures to an aggregate of $15.0 million in any twelve-month period. The Credit Facility, which matures on March 30, 2010, is secured by a first priority security interest in substantially all of our existing and future assets, other than certain licenses which may not be pledged under applicable law, and a first priority pledge of and security interest in all of the partnership interests in the Partnership held by its partners. The Credit Facility ranks equal in right of payment to our existing and future senior indebtedness, including our 10¹/8% mortgage notes, but the security interests securing our obligations under the Credit Facility are senior to the security interests securing our obligations on the notes. The Credit Facility contains customary events of default and covenants, including covenants that limit or restrict our ability to incur additional debt; create liens or other encumbrances; pay dividends or make other restricted payments; prepay subordinated indebtedness; make investments, loans or other guarantees; sell or otherwise dispose of a portion of our assets; or make acquisitions or merge or consolidate with another entity.

During the nine months ended September 30, 2009, there was no indebtedness outstanding under the Credit Facility. As of September 30, 2009, the Partnership was not in compliance with the financial covenants in the Credit Facility and, consequently, it is precluded from utilizing the Credit Facility until it has completed a fiscal quarter as to which it is in compliance with the facility’s covenants (including the financial covenants as though the below-described waiver had not been given). We believe we may not be in compliance with these covenants during the remainder of 2009. However, we believe we have sufficient cash to meet all of our obligations for the foreseeable future and do not anticipate needing to utilize our borrowing capacity under the Credit Facility in 2009. Our inability to satisfy the covenant ratios in the Credit Facility does not constitute a default under the indenture relating to the notes.

On August 12, 2008, the Partnership and Bank of America, N.A. executed an amendment to the Credit Facility which retroactively waived compliance with the Credit Facility’s financial covenants in respect of the quarters ended March 31, 2008 and June 30, 2008 and prospectively waived compliance with the Credit Facility’s financial covenants for each subsequent quarter through 2009, provided that no additional credit is extended under the Credit Facility during a quarter for which the waiver is relied upon.

On January 28, 2009, the Partnership executed an amendment to extend the Credit Facility’s maturity date for an additional year to March 30, 2010. This amendment also allows for the unconditional expenditure of up to $20.0 million to purchase outstanding notes, provided that no proceeds of loans under the Credit Facility are used for this purpose. Of the permitted $20.0 million of expenditures, as of September 30, 2009, the Partnership had spent $11.4 million and was allowed to spend an additional $8.6 million for the repurchase of notes.

Critical Accounting Policies

A description of our critical accounting policies can be found in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2008. There have been no material changes to these policies during the nine months ended September 30, 2009.

Forward-Looking Statements

Certain information included in this report and other materials filed or to be filed by the Partnership and Capital with the Securities and Exchange Commission (as well as information included in oral statements or written statements made or to be made by them) contain or may contain statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts. We have based these forward-looking statements on our current expectations about future events. These forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations, future performance and business, including, current and future operations and statements that include the words “may”, “could”, “should”, “would”, “believe”, “expect”, “anticipate”, “estimate”, “intend”, “plan” or similar expressions. Such statements include information relating to capital spending, financing sources and the effects of regulation (including gaming and tax regulation) and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by us or on our behalf. These risks and uncertainties include, but are not limited to dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or global economic conditions, changes in Federal or state tax laws or the administration of such laws, changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions), expansion of gaming on Native American lands (including such lands in California), risks and uncertainties relating to any applications for licenses and approvals under applicable laws and regulations (including gaming laws and regulations) and any further terrorist attacks similar to those that occurred September 11, 2001. Additional information concerning potential factors that we think could cause our actual results to differ materially from expected and historical results is included in Item 1A of our annual report on Form 10-K for the fiscal year ended December 31, 2008. If one or more of the assumptions underlying our forward-looking statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements contained in this report. Therefore, we caution you not to place undue reliance on our forward-looking statements. This statement is provided as permitted by the Private Securities Litigation Reform Act of 1995.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are potentially exposed to market risk in the form of fluctuations in interest rates and their potential impact upon our variable rate debt outstanding. We evaluate our exposure to this market risk by monitoring interest rates in the marketplace and we have, on occasion, utilized derivative financial instruments to help manage this risk although we did not utilize any financial instruments during the nine months ended September 30, 2009. As of September 30, 2009, we had no variable rate debt outstanding.

Item 4. Controls and Procedures

An evaluation was performed by management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2009, our disclosure controls and procedures are effective.

There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, these internal controls over financial reporting.

Part II. OTHER INFORMATION

Item 5. Other Information

Effective November 12, 2009, Frank R. Baldwin resigned from the Partnership’s Executive Committee. Effective the same date, Donald D. Thrasher was appointed to the Partnership’s Executive Committee. Mr. Thrasher may be designated to serve on the Partnership’s Audit Committee. Mr. Thrasher is President and Chief Operating Officer of Circus Circus Las Vegas which is owned by MGM MIRAGE.

Item 6. Exhibits

(a)

Exhibits.


31.1		Certification of Gary L. Carano


31.2		Certification of Stephanie D. Lepori

32.1		Certification of Gary L. Carano pursuant to 18 U.S.C. Section 1350

32.2		Certification of Stephanie D. Lepori pursuant to 18 U.S.C. Section 1350

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

Large accelerated filers

Accelerated filers

Non-accelerated filers

x (Do not check if smaller reporting company)

Smaller reporting company