NGA Holdco, LLC - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - NGA Holdco, LLC	Financial_Report.xls
EX-32.2 - EXHIBIT - NGA Holdco, LLC	nga53114exhibit322.htm
EX-31.2 - EXHIBIT - NGA Holdco, LLC	nga53114exhibit312.htm
EX-32.1 - EXHIBIT - NGA Holdco, LLC	nga53114exhibit321.htm
EX-31.1 - EXHIBIT - NGA Holdco, LLC	nga53114exhibit311.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended May 31, 2014



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

For the transition period to

Commission File No. 0-52734

NGA HOLDCO, LLC

(Exact name of registrant as specified in its charter)



Nevada		20-8349236
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

21 Waterway Avenue, Suite 150

The Woodlands, TX 77380

(Address of principal executive offices)

Telephone: (713) 559-7400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its 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 registrant was required to submit and post such files). Yes ý No ¨

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



Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	(Do not check if a smaller ¨ reporting company)	Smaller reporting company	ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

NGA HOLDCO, LLC

FORM 10-Q

INDEX

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		Page No.

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	14
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Mine Safety Disclosures	15
Item 5.	Other Information	15
Item 6.	Exhibits	15
SIGNATURES		15

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PART I

FINANCIAL INFORMATION



Item 1.	Financial Statements.

NGA HOLDCO, LLC

CONSOLIDATED BALANCE SHEETS



	May 31, 2014			February 28, 2014
	(Unaudited)
ASSETS
Current assets, consisting of cash	$	2,189,670		$	1,683,837
Other assets:
Investment in Eldorado	25,072,022			25,496,573
Investment in Mesquite	4,855,622			4,244,222
Note receivable, Mesquite	14,000,000			14,000,000
Due from the Newport Funds	5,179,772			5,179,772
	$	51,297,086		$	50,604,404
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities:
Income taxes payable	$	302,174		$	163,241
Accounts payable and accrued expenses	73,228			810
	375,402			164,051
Due to the Newport Funds	3,483,714			3,450,793
	3,859,116			3,614,844
Members’ equity:
Class A unit (1 Unit issued and outstanding)	3,806			3,806
Class B units (9,999 Units issued and outstanding)	57,544,874			57,544,874
Accumulated deficit	(10,110,710		)	(10,559,120		)
	47,437,970			46,989,560
	$	51,297,086		$	50,604,404

See notes to consolidated financial statements.

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NGA HOLDCO, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)



	Three Months Ended
	May 31,
	2014			2013
Interest income	$	236,833		$	—
Equity in net income of unconsolidated investees	455,849			1,625,403
Professional fees and other expenses	(105,339		)	(74,398		)
Income before income taxes	587,343			1,551,005
Income taxes	(138,933		)	—
Net income	$	448,410		$	1,551,005

See notes to consolidated financial statements.

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NGA HOLDCO, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



	Three Months Ended
	May 31,
	2014			2013
Operating activities:
Net income	$	448,410		$	1,551,005
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in net (income) loss of Eldorado	424,551			(493,003		)
Equity in net income of Mesquite	(880,400		)	(1,132,400		)
Increase in accounts payable and accrued expenses	72,417			43,970
Increase in income taxes payable	138,933			—
Net cash provided by (used in) operating activities	203,911			(30,428		)

Investing activities:
Distributions received from Mesquite	269,000			—
Net cash provided by investing activities	269,000			—

Financing activities:
Advances received from the Newport Funds	32,922			30,428
Net cash provided by financing activities	32,922			30,428

Net increase in cash	505,833			—

Cash, beginning of period	1,683,837			1,330,211

Cash, end of period	$	2,189,670		$	1,330,211

See notes to consolidated financial statements.

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NGA HOLDCO, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

Business activities

NGA HoldCo, LLC, a Nevada limited liability company (“NGA”), was formed on January 8, 2007 at the direction of Newport Global Opportunities Fund LP, a Delaware limited partnership (“NGOF”) and an affiliate of Newport Global Advisors LP, a Delaware limited partnership (“Newport”). NGA was formed for the primary purpose of holding equity, directly or indirectly through its subsidiaries, in one or more entities related to the gaming industry. The Company has two wholly-owned subsidiaries, NGA Blocker, LLC, a Nevada limited liability company (“Blocker”), and AcquisitionCo, LLC, a Nevada limited liability company owned indirectly through Blocker (“AcquisitionCo”), each of which was formed on January 8, 2007 (collectively with NGA, the “Company”).

The Company has had no revenue generating business since inception. Its current business plan consists primarily of its holding, through AcquisitionCo, of a 17.0359% equity interest (the “Eldorado Interest”) in Eldorado Holdco LLC, a Nevada limited liability company (“Eldorado”) and a 40% equity interest (the “Mesquite Interest”) in Mesquite Gaming LLC, a Nevada limited liability company (“Mesquite”). The Eldorado Interest was effectively acquired December 14, 2007 (the “Eldorado Acquisition”), in exchange for certain first mortgage bonds and preferred equity interests (the “Eldorado-Shreveport Investments”) valued at $38,314,863. The Mesquite Interest was acquired August 1, 2011 (the “Mesquite Acquisition”), in exchange for $8,222,222 in cash, of which $7,222,222 and $1,000,000 were contributed to the Company by NGOF and Newport Global Credit Fund (“NGCF,” and collectively with NGOF, the “Newport Funds”), respectively.

Eldorado owns entities that own and operate the Eldorado Hotel & Casino located in Reno, Nevada and the Eldorado Resort Casino Shreveport located in Shreveport, Louisiana. One of the entities owned by Eldorado also owns an approximate 21% interest in a joint venture that owns and operates Tamarack Junction Casino & Restaurant, a small casino located in Reno, Nevada. In addition, an approximately 96% owned subsidiary of Eldorado owns a 50% interest in a joint venture (the "Silver Legacy Joint Venture") that owns and operates the Silver Legacy Resort Casino (which is seamlessly connected to the Eldorado Hotel & Casino).

Mesquite is engaged in the casino resort industry in Mesquite, Nevada through wholly-owned subsidiaries that own and operate the CasaBlanca Resort/Casino/Golf/Spa, the Virgin River Hotel/Casino/Bingo, two championship golf courses, a full-service spa, a bowling center, a gun club, restaurants, and banquet and conference facilities. Mesquite also owns real estate on which the Oasis Resort & Casino was located prior to its demolition, which was substantially completed by August 31, 2013.

The Company holds no equity interests other than its equity interests in Eldorado and Mesquite, along with any indirect interests it holds in other entities by virtue of its equity interests in Eldorado and Mesquite, and has no current plans to acquire any interest in another entity. However, if a proposed merger of Eldorado and another entity is consummated, the Eldorado Interest will be exchanged for shares of the combined entity.

Formed in 2005, Newport is a Texas-based investment management firm focused on alternative fixed income strategies. The firm concentrates primarily on the stressed and distressed opportunities within the high yield debt and bank loan markets but may also include the acquisition and disposition of other types of corporate securities and claims. Newport has 11 employees, with its primary office in The Woodlands, TX. Newport’s principals include Timothy T. Janszen, CEO, Ryan Langdon, Senior Managing Director, and Roger A. May, Senior Managing Director. Collectively, the principals have over 35 years of experience investing in the high yield and distressed debt markets. Newport is registered with the Securities and Exchange Commission (the "Commission") as an investment adviser under the Investment Advisers Act of 1940, as amended. Newport is investment manager of the Newport Funds, private investment funds which seek attractive long-term risk adjusted returns by capitalizing on investments in the distressed debt markets and possibly control-oriented investments. The Newport Funds began investing in 2006.

Concentrations and economic uncertainties

The Company is, and expects to continue to be, economically dependent upon relatively few investments in the gaming industry. The United States recently experienced a recession accompanied by, among other things, weakness in the commercial and investment banking systems resulting in reduced credit and capital financing availability, and highly curtailed gaming, other recreational, construction and real estate market activities and general discretionary consumer spending. Although capital market activity and liquidity are reported to have improved of late, the recovery from this recessionary period is fragile and there can be no assurance that the Company’s business, which has been severely affected by the downturn, will fully recover to pre-recession levels. In addition, the Company carries cash on deposit with financial institutions substantially in excess of

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federally-insured limits. However, the extent of any loss that might be incurred as a result of uninsured deposits in the event of a future failure of a bank or other financial institutions, if any, is not subject to estimate at this time.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Accounting and Presentation

The Company prepares its financial statements on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (GAAP). The consolidated financial statements include the accounts of the NGA and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Investments in Eldorado and Mesquite (Notes 4 and 5) are accounted for using the equity method of accounting. Accordingly, the Company measures all of its assets and liabilities on the historical cost basis of accounting except as required by GAAP. Such assets are evaluated at least annually (and more frequently when circumstances warrant) to determine if events or changes in circumstances indicate that the carrying value may not be recoverable. Examples of such events or changes in circumstances that might indicate impairment testing is warranted might include an adverse change in the legal, regulatory or business climate relative to gaming nationally or in the jurisdictions in which the Company’s investees operate, or a significant long-term decline in historical or forecasted earnings or cash flows of the investee or the fair value of its property or business, possibly as a result of competitive or other economic or political factors. In evaluating whether a loss in value is other than temporary, the Company considers: (1) the length of time and the extent to which the fair value has been less than cost; (2) the financial condition and near-term prospects of the investee, including any specific events which may influence the operations; (3) the Company’s intent and ability to retain its investments in the investee for a period of time sufficient to allow for any anticipated recovery in fair value; (4) the condition and trend of the economic cycle; (5) the investee’s historical and forecasted financial performance; (6) trends in the general market; and (7) the investee’s capital strength and liquidity.

In determining whether the carrying value of the Company’s investment in an investee is less than its estimated fair value of the investment, a discounted cash flow approach to value is used and is based on Level 3 inputs as defined by GAAP. The Company’s valuation model incorporates an estimated weighted-average cost of capital (effectively, a discount rate) and terminal value multiples that are used by market participant. The estimated weighted-average cost of capital is based on the risk free interest rate at the time, adjusted for specific risk factors. The Company also considers the metrics of specific business transactions that may be comparable to varying degrees. The weight assigned to these approaches to value in the Company’s impairment evaluation may vary from period to period depending upon evolving events. Forecasted prospective financial information used in the model is based on management’s excepted course of action. Sensitivity analyses are also performed related to key assumptions used, including possible variations in the weighted-average cost of capital and terminal value multiples, among others.

Equity in the net income (loss) and other comprehensive income (loss) of unconsolidated investees

The Company recognizes equity in the net income (loss) and other comprehensive income (loss) of its unconsolidated investees on a calendar year basis. For example, the Company’s net income for the three months ended May 31, 2014 includes equity in the net income of its investees for the investees' three months ended March 31, 2014.

Use of estimates

Timely preparation of financial statements in accordance with the rules and regulations of the Commission requires management to make estimates that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting periods. Actual results could differ from those estimates. Management estimates that the Company will eventually sell its investments in unconsolidated investees following an expected economic recovery at a price sufficient to realize the carrying value of the Company’s assets which estimates are subject to material variation over the next year.

3. Ownership and Management of the Company

Ownership

The Company’s one issued and outstanding Class A Unit, representing all of its voting equity, is held by NGA VoteCo, LLC, a Nevada limited liability company (“VoteCo”). All of the Company’s issued and outstanding Class B Units, representing all of its non-voting equity, are held by NGA No VoteCo, LLC, a Nevada limited liability company (“InvestCo”). At present, the Company has no plans to issue any additional Class A or Class B Units.

VoteCo is owned by Timothy T. Janszen and Ryan L. Langdon, each of whom owns a 42.85% interest, and Roger A. May, who owns a 14.3% interest. Messrs. Janszen, Langdon and May collectively are referred to as the “VoteCo

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Equityholders." InvestCo is owned by the Newport Funds. Newport holds for the benefit of the Newport Funds all of InvestCo’s issued and outstanding voting securities.

Management

The VoteCo Equityholders, through VoteCo, control all matters of the Company that are subject to the vote of members, including the appointment and removal of managers. Each of the VoteCo Equityholders is a member of the Company’s board of managers, and Mr. Janszen is the Company’s operating manager who has responsibility for the day-to-day management of the Company. The Class B Units issued to InvestCo allow it and its investors to invest in the Company without having any voting power or power to control the operations or affairs of the Company, except as otherwise required by law. If InvestCo and its investors had any of the power to control the operations or affairs of the Company afforded to holders of the Class A Units, they and their respective constituent equityholders would generally be required to be licensed or found suitable under the gaming laws and regulations of the States of Nevada and Louisiana.

4. Investment in Eldorado

On December 14, 2007, the Company, through AcquisitionCo, effectively acquired its Eldorado Interest by transferring the Eldorado-Shreveport Investments in part to Eldorado Resorts, LLC (“Resorts”) and the balance to Donald L. Carano (“Carano”), free and clear of any liens. The Eldorado-Shreveport Investments included first mortgage bonds due 2012 co-issued by Eldorado Casino Shreveport Joint Venture (the “Louisiana Partnership”) and Shreveport Capital Corporation, a wholly-owned subsidiary of the Louisiana Partnership (the “Mortgage Bonds”) and 11,000 preferred shares issued by Shreveport Gaming Holdings, Inc. (“SGH”), then a partner of the Louisiana Partnership, that is not affiliated with Resorts or the Company. The original principal amount of the Mortgage Bonds was $38,045,363. Previously in May 2007, NGOF contributed the Eldorado-Shreveport Investments to the Company at the estimated fair value of such investments as of that date. Effective April 1, 2009, Resorts became a wholly-owned subsidiary of Eldorado when all of the members of Resorts, including AcquisitionCo, exchanged their interests in Resorts for identical interests in Eldorado. Of the Company’s 17.0359% Eldorado Interest, 14.47% and 2.5659% interests were acquired directly from Resorts and Carano, respectively.

As a limited liability company, Eldorado is generally not subject to federal income taxes and its members are required to include their respective shares of Eldorado’s taxable income in their respective income tax returns. Eldorado’s operating agreement provides that the board of managers will distribute each year to each member an amount equal to such member’s allocable share of taxable income multiplied by the highest marginal combined federal, state, and local income tax rate applicable to the members for that year.

We evaluated our investment in Eldorado for possible impairment as of May 31, 2014 and determined that no impairment existed.

The following table presents unaudited condensed financial information of Eldorado for the three months ended March 31, 2014 and 2013 (in thousands):



	2014			2013
Net operating revenues	$	57,030		$	62,179
Operating income	$	1,552		$	6,025
Net income (loss)	$	(2,333	)	$	2,087

The following table presents unaudited condensed financial information of one of Eldorado’s unconsolidated investees, the Silver Legacy Joint Venture, for the three months ended March 31, 2014 and 2013 (in thousands):



	2014			2013
Net operating revenues	$	27,577		$	26,818
Operating income	$	1,431		$	219
Net loss	$	(1,306	)	$	(1,932	)

On September 9, 2013, Eldorado and MTR Gaming Group, Inc. (“MTR”), a publicly traded company, announced that they had entered into a definitive agreement (the “Merger Agreement”), which provides for the combination of MTR and Eldorado in a stock merger with a cash election option offered to MTR’s current stockholders. On November 18, 2013, Eldorado and MTR entered into Amendment No. 1 to the Merger Agreement, which increased the cash election option per share amount from $5.15 to $6.05 and increased the aggregate amount available for the purchase of shares pursuant to the cash option from $30 million to $35 million, with the $5 million increase to be funded by Eldorado utilizing its cash on hand. MTR’s remaining common shares will be exchanged for shares in the combined new company (“NewCo”).

If consummated, the merger would result in shares of NewCo being listed on The Nasdaq Stock Market (the "Nasdaq"). Pursuant to the terms of the merger, the members of Eldorado will collectively receive, in the aggregate, consideration equal to the product of (a) Eldorado’s adjusted EBITDA for the twelve months ending on the most recent month end preceding the closing date by at least twenty days and (b) 6.81. The amount of consideration is subject to adjustment depending on Eldorado’s excess cash, outstanding debt, and working capital based upon an agreed upon working capital target for Eldorado, an amount equal to certain transaction expenses of MTR which is capped at $7.0 million, the value of Eldorado’s interest in the

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Silver Legacy Joint Venture, and the amount of restricted cash on Eldorado’s balance sheet (if any) relating to the credit support required in connection with the Silver Legacy Joint Venture’s credit facility.

Consummation of the Mergers is subject to numerous conditions including, among others, MTR receiving a superior proposal. In addition, Eldorado has been advised by MTR that it has received proposals that may lead to a superior proposal that would entitle it to terminate the Merger Agreement by paying Eldorado a $5.0 million termination fee plus reimbursement for out-of-pocket costs not to exceed $500,000. Under certain circumstances of non-performance by MTR, Eldorado Holdo may terminated the Merger Agreement and receive a $6.0 million termination fee plus reimbursement of out-of-pocket costs not to exceed $1.0 million. Accordingly, there can be no assurances that the transactions contemplated by the Merger Agreement will be consummated on the terms described herein or at all.

Upon closing of the aforementioned Merger Agreement, the Company may distribute the shares of NewCo’s common stock received at closing to InvestCo for its distribution to NGOF. Should that occur, the Company's operations will, subsequent to such date, reflect only the Company's ownership of Mesquite. Management is unable to determine at this time the impact on the Company if the transactions contemplated by the Merger Agreement are consummated and the Company ultimately does not distribute the shares of NewCo to InvestCo for its distribution to NGOF.

5. Investment in Mesquite

Mesquite is engaged in the hotel casino industry in Mesquite, Nevada through its wholly-owned subsidiaries C & HRV, LLC (doing business as Virgin River Hotel/Casino/Bingo) and VRCC, LLC and its wholly-owned subsidiaries, 5.47 RBI, LLC and RBG, LLC (doing business as CasaBlanca Resort/Casino/Golf/Spa), and its wholly-owned subsidiary, CasaBlanca Resorts, LLC (known as the Oasis Resort and Casino prior to its demolition which commenced in May 2013 and was substantially completed in August 2013) and its wholly-owned subsidiaries, Oasis Interval Ownership, LLC, Oasis Interval Management, LLC and Oasis Recreational Properties, Inc.

On August 1, 2011, the Company, through AcquisitionCo, acquired the Mesquite Interest in exchange for $8,222,222 in cash that was contributed to the Company by the Newport Funds in July 2011. The acquisition was completed upon the transfer to Mesquite of all of the assets of Black Gaming, LLC (“Black Gaming”), including Black Gaming’s direct and indirect ownership interests in its subsidiaries. The transfer of the Black Gaming assets to Mesquite and the acquisition by AcquisitionCo of the Mesquite Interest were pursuant to a joint plan of reorganization (the “Plan”) filed by Black Gaming and its subsidiaries with the United States Bankruptcy Court for the District of Nevada (the “Court”) on March 1, 2010, and approved by the Court on June 28, 2010.

We evaluated our investment in Mesquite for possible impairment as of May 31, 2014 and determined that no impairment existed.

The following tables present unaudited condensed financial information of Mesquite for the three months ended March 31, 2014 and 2013 (in thousands):



	2014		2013
Net operating revenues	$	26,476	$	26,998
Operating income	$	3,166	$	4,296
Net income	$	2,201	$	2,831

6. Note Receivable, Mesquite

On August 22, 2013, the Company, through Blocker, loaned $14 million to Mesquite under a Second Lien Credit Agreement, dated as of August 22, 2013 (the “Credit Agreement”), pursuant to which Mesquite borrowed a total of $35 million from the Company and other lenders not affiliated with the Company for the purpose of refinancing a portion of its existing indebtedness. Each of the other lenders, consisting of limited liability companies and trusts, has an ownership interest in Mesquite or has one or more members or beneficiaries who hold an ownership interest in Mesquite. The repayment of the indebtedness outstanding under the Credit Agreement is secured by a second lien on substantially all of Mesquite’s real property, including that relating to its Casablanca Resort & Casino, its Virgin River Hotel and Casino, and its Oasis Hotel and Casino (the demolition of which was largely completed in August 2013), each located in Mesquite, Nevada. The terms of the loan provide for the payment by Mesquite to each lender, including Blocker, of interest on the unpaid principal amount owed to such lender at the rate of 7% per annum over the period from August 22, 2013 to August 22, 2014, and at the rate of 8% per annum thereafter. During the term of the loan, interest is payable in cash, in arrears, monthly on the first day of each month, commencing on September 1, 2013. The principal amount of the loan, along with any accrued and unpaid interest, becomes due and payable on February 21, 2020. The indebtedness may, at the option of Mesquite, be prepaid in whole or in part, at any time without penalty, and repayment of the indebtedness may be accelerated upon the occurrence of an event of default, in accordance with the terms of the Credit Agreement.

The Company's participation as a lender under the Credit Agreement was funded utilizing $1 million of cash on hand and a capital contribution from InvestCo in the amount of $13 million, which was provided to InvestCo by its equity owners, NGOF and NGCF, in the respective amounts of $11.3 million and $1.7 million.

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7. Transactions with the Newport Funds

In 2007, NGOF received on behalf of (but did not remit to) the Company $5,118,172 of interest on the Mortgage Bonds and $61,600 of preferred dividends which amounts are reflected in the accompanying balance sheets as due from the Newport Funds. There is no formal agreement outlining the settlement of this receivable (and the payable discussed in the following paragraph) and, accordingly, the receivable is reflected as a non-current asset.

At May 31, 2014 and February 28, 2014, the Company owed $3,483,714 and 3,450,793, respectively, to the Newport Funds for expenses paid on the Company’s behalf since inception of the Company. There have been no repayments of such amounts advanced on behalf of the Company and there is no formal agreement outlining the settlement of the receivable and payable between the Newport Funds and the Company. Accordingly, the receivable and payable are reflected as a non-current asset and a non-current liability, respectively, at May 31, 2014 and February 28, 2014.

8. Income Taxes

Blocker, a wholly-owned subsidiary of NGA, has elected to be taxed as a corporation. Accordingly, equity in the flow-through earnings of Eldorado and Mesquite, interest income from the Credit Agreement, and interest expense on intercompany borrowings received from Holdco to fund a portion of the Credit Agreement are taxed to Blocker. NGA recognizes interest income on intercompany loans to Blocker and incurs certain costs, primarily associated with being a public company, including professional and other fees, which, for tax purposes, flow through to its members. The Company has recorded a valuation allowance of 100% of its net deferred tax assets consisting primarily of impairment charges related to its investments in unconsolidated investees and the investees investments to recognize that realization of the deferred tax asset is not considered more likely than not. For these reasons, the Company’s effective tax rates for the periods presented are different than the statutory federal rate of 35%.

9. Financial Instruments

Except for cash, the fair value of which equals its carrying value, the only significant financial instruments the Company has are its investments in unconsolidated investees accounted for using the equity method (for which fair value disclosure is not required) and amounts due to and from the Newport Funds. There is no formal agreement between the Company and the Newport Funds related to the amounts due, including no stated right of offset, repayment terms, and interest rate or method. Accordingly, it is not practical to estimate the fair value of such financial instruments.

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

The following information should be read in conjunction with the consolidated financial statements included in this Quarterly Report and in our Annual Report on Form 10-K for the year ended February 28, 2014, as filed with the United States Securities and Exchange Commission ("SEC").

Overview

The Company and its subsidiaries were formed as legal entities in January 2007 for the primary purpose of holding equity in one or more entities related to the gaming industry, and to exercise the rights, and manage the distributions received, in connection with those holdings. The Company’s 17.0359% interest in Eldorado and 40% interest in Mesquite were effectively acquired on December 14, 2007 and August 1, 2011, respectively.

The Company has had no revenue generating business since inception. Its only operations have consisted of equity in the net income (losses) of Eldorado and Mesquite, interest income earned on the Eldorado-Shreveport Investments, and nominal administrative expenses.

Eldorado

Eldorado, through Resorts, owns and operates the Eldorado-Reno, a premier hotel/casino and entertainment facility in Reno, Nevada, and the Eldorado-Shreveport, an all-suite art deco-style hotel and a tri-level riverboat dockside casino complex situated along the Red River in Shreveport, Louisiana. Eldorado also owns, through Resorts, a 21.25% interest in Tamarack Junction, a small casino in south Reno that will be disposed of if the proposed transaction described under "Proposed Eldorado Transaction," below, closes on the terms of the below-describer merger agreement, as currently amended. Also, an approximately 96% owned subsidiary of Resorts (which may, pursuant to the Retained Interest Agreements, subsequently become 100% owned by Resorts if the proposed Eldorado transaction closes on the terms of the Merger Agreement, as amended) owns a 50% interest in a joint venture that owns the Silver Legacy Resort Casino, a major, themed hotel/casino located adjacent to Eldorado-Reno.

On June 1, 2011, Resorts and Eldorado Capital Corp., a Nevada Corporation that is a wholly-owned subsidiary of Resorts, completed the issuance of $180 million of 8.625% Senior Secured Notes due June 15, 2019 (the “Resorts Senior Notes”). Also, on June 1, 2011, Resorts entered into a new $30 million senior secured revolving credit facility that was available until May 30, 2014 (the “Resorts New Credit Facility”), which consisted of a $15 million term loan requiring principal payments of $1.25 million each quarter beginning September 30, 2011, and a $15 million revolving credit facility. Resorts did not renew the Resorts New Credit Facility when it matured on May 30, 2014. Proceeds from the issuance of the Resorts Senior Notes, together with borrowings under the Resorts New Credit Facility, were used to redeem approximately $230 million of previously outstanding debt owed by Resorts and its subsidiaries, of which approximately $31 million was held by Resorts. The remaining previously outstanding debt was redeemed on August 1, 2011, utilizing $9.7 million of restricted cash which was set aside on June 1, 2011 for the purpose of redeeming the notes that were called. Interest on the Senior Secured Notes is payable semiannually each June 15 and December 15 (commencing on December 15, 2011) to holders of record on the preceding June 1 or December 1, respectively. Interest on the credit facility was payable on the last day of the Eurodollar Rate loan, provided, however, that if the period exceeded three months the interest was payable on the respective dates that fell every three months after the beginning of the loan period. For each Base Rate loan, interest was payable as of the end of the respective quarter. The interest period could not have exceeded the maturity date of the credit facility for either a Eurodollar Rate loan or Base Rate loan.

Operational highlights for Eldorado for the three months ended March 31, 2014 included net operating revenues of approximately $57.0 million and operating expenses of approximately $53.7 million. Eldorado’s equity in the net losses of its unconsolidated affiliates was approximately $0.4 million and interest expense was approximately $3.9 million for the period. Eldorado's net loss for the quarter was approximately $2.3 million, compared with net income of approximately $2.1 million for the corresponding quarter of 2013. The year over year quarterly decrease in Eldorado's net income of approximately $4.4 million was due primarily to a decrease in operating revenues and an increase in acquisition charges of approximately $5.1 million and $1.4 million, respectively, partially offset by a reduction in operating expenses of approximately $1.7 million. The decrease in operating revenues was primarily the result of the July 2013 opening of a new casino which is located in Bossier City, Louisiana and competes directly with Eldorado-Shreveport.

Mesquite

Mesquite is engaged in the hotel casino industry in Mesquite, Nevada and owns and operates the Virgin River Hotel/Casino/Bingo and the CasaBlanca Resort/Casino/Golf/Spa. Mesquite also owns real estate on which the Oasis Resort & Casino was located prior to its demolition, which was largely completed in August 2013. In addition to casino and hotel activities,

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Mesquite's operations also include vacation ownership interval sales, two golf courses, a full-service spa, a bowling center, and banquet and conference facilities.

On August 1, 2011, Mesquite completed the issuance of $62.5 million of Senior Secured Notes under its new loan facility that provided for interest at an annual rate of LIBOR (1.5% floor and 4.5% ceiling) plus 700 basis points and were due and payable August 1, 2016 (the “Mesquite Senior Notes”), and entered into a new $10 million senior secured revolving credit facility. Interest and principal on the Mesquite Senior Notes and interest on the senior secured revolving credit facility were payable quarterly.

On August 22, 2013, Mesquite completed its refinancing of the indebtedness then outstanding under the Mesquite Senior Notes and the senior secured credit facility utilizing the proceeds from the following: (a) $20 million of First Lien Notes issued to Nevada State Bank, due and payable August 21, 2019, that provide for interest at a 30-day LIBOR rate effective on the first day of each month plus an applicable margin which is determined by reference to Mesquite's senior leverage ratio (5.25% for a ratio greater than 2:1 and 4.75% for a ratio less than or equal to 2:1), (b) a three-year term, $6 million First Lien Revolver with Nevada State Bank, which is subject to the same interest terms as the First Lien Notes plus 0.25% quarterly on the unused principal portion of the First Lien Revolver, and (c) $35 million of Second Lien Notes issued to Wilmington Trust, due and payable February 21, 2020, that provide for no principal amortization and the payment of interest on the unpaid principal amount at the rate of 7% per annum over the period from August 22, 2013 to August 22, 2014, and at the rate of 8% per annum thereafter.

On August 22, 2013, the Company through Blocker loaned $14 million to Mesquite under a Second Lien Credit Agreement, dated as of August 22, 2013 (the “Credit Agreement”), pursuant to which Mesquite borrowed a total of $35 million from the Company and other lenders not affiliated with the Company for the purpose of refinancing a portion of its then existing indebtedness utilizing the proceeds from the borrowings under the Credit Agreement. Each of the other lenders under the Credit Agreement, consisting of limited liability companies and trusts, has an ownership interest in Mesquite or has one or more members or beneficiaries who hold an ownership interest in Mesquite. The repayment of the indebtedness outstanding under the Credit Agreement is secured by a second lien on substantially all of Mesquite’s real property, including that relating to its Casablanca Resort & Casino, its Virgin River Hotel and Casino, and its Oasis Hotel and Casino (the demolition of which was largely completed in August 2013), each located in Mesquite, Nevada. The indebtedness outstanding under the Credit Agreement may, at the option of Mesquite, be prepaid in whole or in part, at any time without penalty, and repayment of the indebtedness may be accelerated upon the occurrence of an event of default, in accordance with the terms of the Credit Agreement.

Mesquite's results of operations tend to be seasonal in nature. During the year ended December 31, 2013, approximately 59% of Mesquite's operating income (less depreciation and amortization and other non-cash items) was generated in the first quarter and approximately 39% was generated in the second quarter, with the remainder being generated during the second half of the year. Consequently, Mesquite's results of operations for the three months ended March 31, 2014 should not be extrapolated to arrive at anticipated full year results for 2014. Operational highlights for Mesquite for the three months ended March 31, 2014 included net revenues of approximately $26.5 million, operating expenses of approximately $23.3 million, and interest expense of approximately $1.0 million. Net income for the quarter ended March 31, 2014 was approximately $2.2 million, compared with net income of approximately $2.8 million for the corresponding period of 2013. The year over year quarterly decrease in net income of approximately $0.6 million was due primarily to a decrease in net operating revenues and an increase in net operating expenses of approximately $0.5 million and $0.6 million, respectively partially offset by a reduction in interest expense of approximately $0.5 million . Mesquite's management believes that several additional factors, including general economic weakness in Nevada and neighboring states and high gasoline prices, continue to negatively affect operating results.

Results of Operations, Three Months Ended May 31, 2014 Compared to the Three Months Ended May 31, 2013

For the three months ended May 31, 2014, the Company’s equity in the net income of its unconsolidated investees was approximately $0.5 million, with Eldorado and Mesquite accounting for an approximate $0.4 million loss and $0.9 million gain, respectively, compared to approximately $1.6 million, with Eldorado and Mesquite accounting for approximate $0.5 million and $1.1 million gains, respectively, for the corresponding period of 2013. The decrease was primarily attributable to a decrease of approximately $0.9 million and $0.2 million in the Company's equity in the net income of Eldorado and Mesquite, respectively, when comparing the three months ended May 31, 2014 to the corresponding period of 2013. Professional fees and other expenses incurred by the Company during the quarter increased $30,941 when compared to the same period in 2013, due primarily to the timing of services. Income tax expense during the quarter increased $138,933 when compared to the same period in 2013 due to 2013 income tax expense having been reduced by the realization of net operating loss and tax credit carryforwards for which a valuation allowance had been previously provided.

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Liquidity and Capital Resources

The Company expects to incur during the remainder of fiscal year 2014 approximately $0.2 million in costs associated with the Company’s ownership of its interests in Eldorado and Mesquite, not including any costs associated with the consummation of the proposed merger of Eldorado and another entity (see "Proposed Eldorado Transaction," below) as those costs cannot be reasonably estimated at this time. All costs incurred are expected to be funded by the Newport Funds. Thus, the Company has access to the resources needed to fund its operations and commitments during the remainder of fiscal year 2014. The Company has no current plans to make any additional investments, but see the discussion under "Proposed Eldorado Transaction, " below, regarding a proposed transaction pursuant to which the Company's interest in Eldorado may be converted into an interest in a new entity, of which Eldorado would, by merger, become a part.

Proposed Eldorado Transaction

On February 13, 2014, Eldorado and MTR entered into Amendment No. 2 to the Merger Agreement, which allows for the minority investors who own 3.8142% of ELLC (the "Minority Investors") to enter into agreements with Eldorado and MTR to transfer all of their interests in ELLC to Eldorado following closing of the merger for a portion (the "Retained Consideration") of the aggregate number of shares of NewCo to be delivered, as merger consideration, at closing to all members of Eldorado (collectively, the "Retained Interest Agreements"). Prior to its second amendment, the Merger Agreement required the Minority Investors to transfer their respective interests in ELLC to a wholly-owned subsidiary of Eldorado on or prior to the closing date. Pursuant to the Retained Interest Agreements, the Minority Investors will grant a wholly-owned subsidiary of Eldorado a right, exercisable for three months commencing on the first business day after the first anniversary of the closing date of the mergers, to acquire all of their interests in ELLC in exchange for payment of the Retained Consideration. This wholly-owned subsidiary of Eldorado will grant a right, pursuant to the Retained Interest Agreements, to the Minority Investors, exercisable for three months commencing on the first business day after the second anniversary of the closing date of the mergers, to put to it all of the Minority Investors’ interests in ELLC in exchange for payment of the Retained Consideration. The Retained Consideration shall mean the number of shares of NewCo common stock equal to the estimated value of ELLC’s interest in Silver Legacy (as calculated in accordance with the provisions of the Merger Agreement), multiplied by the portion of the outstanding interests in ELLC (expressed as a percentage) represented by the interests in ELLC held by the Minority Investors. The number of shares of NewCo common stock issuable at closing to all members of Eldorado shall be reduced by the number of shares of NewCo common stock equal to the Retained Consideration.

On May 13, 2014, Eldorado and MTR entered into Amendment No. 3 to the Merger Agreement, which expands the circumstances under which either Eldorado or MTR may unilaterally extend the termination date from June 9, 2014 for 180 days to include a scenario in which MTR will not have obtained the requisite stockholder approval of the Merger Agreement by June 9, 2014. The parties entered into the amendment in order to allow for additional time for the registration statement on Form S-4 initially filed by NewCo on November 4, 2013 to be declared effective by the Securities and Exchange Commission and for MTR to obtain the requisite stockholder approval following such effectiveness.

Under the terms of the Merger Agreement, as amended, the transaction value of Eldorado will be determined by Eldorado’s adjusted EBITDA for the twelve-month period specified in the Merger Agreement multiplied by 6.81, less adjustments depending on Eldorado’s excess cash, outstanding debt, and working capital based upon an agreed upon working capital target for Eldorado, an amount equal to certain transaction expenses of MTR which is capped at $7.0 million, the value of Eldorado’s interest in the Silver Legacy Joint Venture, and the amount of restricted cash on Eldorado’s balance sheet (if any) relating to the credit support required in connection with the Silver Legacy Joint Venture’s credit facility. Based on Eldorado’s adjusted EBITDA for the twelve-month period ended September 30, 2013 (including its interest in Silver Legacy), Eldorado’s owners, including the Company, would receive in exchange for their current interests in Eldorado, an aggregate of approximately 35.6 million shares, or approximately 55% of the total shares, in NewCo valued at $6.05 per share. These valuation metrics and the Company’s percentage ownership interest in Eldorado would yield a value to the Company that exceeds the Company’s current carrying value of its investment in Eldorado. Based upon this calculation, the Company would at closing acquire ownership of between 9% and 10% of NewCo, depending on the number of shares purchased pursuant to the cash option.

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Consummation of the Mergers is subject to numerous conditions including, among others, MTR receiving a superior proposal. In addition, Eldorado has been advised by MTR that it has received proposals that may lead to a superior proposal that would entitle it to terminate the Merger Agreement by paying Eldorado a $5.0 million termination fee plus reimbursement for out-of-pocket costs not to exceed $500,000. Under certain circumstances of non-performance by MTR, Eldorado Holdco may terminate the Merger Agreement and receive a $6.0 million termination fee plus reimbursement of out-of-pocket costs not to exceed $1.0 million. Accordingly, there can be no assurances that the transactions contemplated by the Merger Agreement will be consummated on the terms described herein or at all. The foregoing discussion is qualified in its entirety by reference to the Merger Agreement and to Amendments No. 1, No. 2 and No. 3 to the Merger Agreement, copies of which are included as exhibits to this report.

Upon closing of the aforementioned Merger Agreement, which is not assured, the Company may distribute the shares of NewCo common stock received at closing to InvestCo for its distribution to NGOF. Should that occur, the Company's operations will, subsequent to such date, reflect only the Company's ownership of Mesquite and will no longer reflect the Company's current ownership of the Eldorado Interest. The Company is unable to determine at this time the impact on the Company if the transactions contemplated by the Merger Agreement are consummated and the Company ultimately does not distribute the shares of NewCo to InvestCo for its distribution to NGOF.

Critical Accounting Estimates and 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 February 28, 2014. There have been no material changes to those policies during the three months ended May 31, 2014.

Recently Issued Accounting Standards

No recently issued accounting pronouncements not yet adopted are expected to have a material impact on our future financial position, results of operations, or cash flows.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.



Item 4.	Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), an evaluation was performed by management, with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective as of May 31, 2014.

Changes in Internal Control Over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, our management, including our principal executive officer and principal financial officer, has evaluated our internal control over financial reporting. Based on that evaluation, there have been no changes in our internal control over financial reporting during the three month period ended May 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION



Item 1.	Legal Proceedings.

None.



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

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Not applicable.



Item 3.	Defaults Upon Senior Securities.

None.



Item 4.	Mine Safety Disclosures.

Not applicable.



Item 5.	Other Information.

None.



Item 6.	Exhibits.

The list of exhibits set forth in the accompanying Exhibit Index is incorporated by reference into this Item 6.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




	NGA HOLDCO, LLC

Date: July 15, 2014	By:	/S/ TIMOTHY T. JANSZEN
		Timothy T. Janszen Operating Manager (Principal Executive Officer)

Date: July 15, 2014	By:	/S/ ROGER A. MAY
		Roger A. May Manager (Principal Financial Officer)

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EXHIBIT INDEX




Exhibit No.		Description

10.1		Agreement and Plan of Merger, dated as of September 9, 2013, between MTR Gaming Group, Inc., Eclair Holdings Company, Ridgeline Acquisition Corp., Eclair Acquisition Company, LLC, Eldorado HoldCo, LLC, and Thomas Reeg, Robert Jones and Gary Carano, as the Member Representative (Incorporated by reference to Exhibit 2.1 to the Current Report of MTR Gaming Group, Inc. (Commission File No. 000-20508) on Form 8-K filed with the Securities and Exchange Commission on September 11, 2013).

10.2		Amendment No. 1 to Agreement and Plan of Merger, dated as of September 9, 2013, between MTR Gaming Group, Inc., Eclair Holdings Company, Ridgeline Acquisition Corp., Eclair Acquisition Company, LLC, Eldorado HoldCo, LLC, and Thomas Reeg, Robert Jones and Gary Carano, as the Member Representative (Incorporated by reference to Exhibit 2.2 to the Current Report of MTR Gaming Group, Inc. (Commission File No. 000-20508) on Form 8-K filed with the Securities and Exchange Commission on November 18, 2013).

10.3		Amendment No. 2 to Agreement and Plan of Merger, dated as of September 9, 2013, between MTR Gaming Group, Inc., Eclair Holdings Company, Ridgeline Acquisition Corp., Eclair Acquisition Company, LLC, Eldorado HoldCo, LLC, and Thomas Reeg, Robert Jones and Gary Carano, as the Member Representative (Incorporated by reference to Exhibit 2.3 to the Current Report of MTR Gaming Group, Inc. (Commission File No. 000-20508) on Form 8-K filed with the Securities and Exchange Commission on February 13, 2014).

10.4		Amendment No. 3 to Agreement and Plan of Merger, dated as of September 9, 2013, between MTR Gaming Group, Inc., Eclair Holdings Company, Ridgeline Acquisition Corp., Eclair Acquisition Company, LLC, Eldorado HoldCo, LLC, and Thomas Reeg, Robert Jones and Gary Carano, as the Member Representative (Incorporated by reference to Exhibit 2.3 to the Current Report of MTR Gaming Group, Inc. (Commission File No. 000-20508) on Form 8-K filed with the Securities and Exchange Commission on May 13, 2014).

31.1		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer furnished as required by Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer furnished as required by Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following financial statements from NGA Holdco, LLC's Quarterly Report on Form 10-Q for the three months ended May 31, 2014, filed with the Securities and Exchange Commission on July 15, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at May 31, 2014 and February 28, 2014; (ii) the Consolidated Statements of Operations for the three months ended May 31, 2014 and 2013; (iii) the Consolidated Statements of Cash Flows for the three months ended May 31, 2014 and 2013; and (iv) the Notes to Consolidated Financial Statements.

Attached files

NGA Holdco, LLC Reports

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