And if the recession continues in Southern Nevada, other casino operators are likely to follow the blueprint crafted for Herbst, according to attorneys at Gordon Silver who represented Herbst in bankruptcy court.

David Ehlers, chairman of Las Vegas Investment Advisors, agreed, calling the Herbst bankruptcy "a road map for what is going to happen in the future."

Although analysts are not predicting which casino operators will file for bankruptcy, most of the major Strip casino operators are struggling under huge debt burdens. Two gaming companies are now in bankruptcy.

Station Casinos, which focused on the locals casino market, and Fontainebleau, which stopped construction after banks cut off financing, are going through Chapter 11 bankruptcies.

Herbst Gaming, a family-owned casino and slot-route operator, filed for Chapter 11 bankruptcy in March.

In October, Judge Gregg Zive of Reno approved a reorganization plan. Banks with $847.5 million in secured loans received $350 million restructured debt for part of their claims and ownership in the company for the rest. Trade creditors, such as suppliers and companies that provide services to Herbst, were paid.

Subordinated bondholders and the Herbst family, which owned the enterprise, got nothing.

The lack of assets for unsecured bondholders led to desperate battles in bankruptcy court, Turner said. While attorneys for the unsecured creditors did their best, they could not fight the facts and laws that said unsecured creditors were entitled to nothing, she said.

"Bat for the fences when you have nothing to lose," Turner said of the unsecured creditors' effort. "This is going to come up time and time again (in other casino Chapter 11 cases)."

"(Bankruptcy is) an effective system, not a pleasant system," Gordon, the debtors' lead attorney, said.

On the other hand, he said, "your employees are still paid. Your taxes are still paid. You're servicing your customers. You are now able to maintain your properties."

Even after a bankruptcy, a company's former owners can end up having some role either in management or they can earn back an ownership stake, he said.

That's what happened with the Herbst case where the Herbst brothers -- Troy, Edwards and Timothy -- will remain as directors of the company with Troy Herbst CEO of the new company.

That's the scenario for the good casinos, he said. Outdated casinos may be liquidated and razed.

Gordon expects the Herbst Gaming story line to be repeated again in bankruptcy court as other operators hit the wall.

The company was relatively small a few years ago with $300 million in debt. The Herbst brothers decided to expand. The casino industry was pumping out steady cash flow, and interest rates on debt were low.

One of Herbst Gaming's biggest deals -- the acquisition of Whiskey Pete's, Buffalo Bill's and the Primm Valley Resort at the California-Nevada border -- closed in April 2007 right before the economy started to go into a tailspin.

By the end of that year, Herbst Gaming was carrying $1.15 billion in debt.

At the time, Herbst Gaming was worried about Nevada's new smoking ban on bars with restaurants and feared the ban would drive away good customers.

The properties at Primm seemed like a way to reduce reliance on slot routes, which included bars and restaurants.

As the economy began to slip, operators were reminded that it was difficult to increase their hold on slot machines to boost income, because gamblers can go to competitors with looser machines, Gordon said. Casinos had been raking in big profit margins on gift shops, restaurants and retail shops, but sales at these side ventures started drying up.

Casino values are based on cash flow defined as earnings before interest, taxes, depreciation and amortization, Gordon said. So the value of casinos is shrinking along with their cash flow.

"The economy is still not recovering, and gaming is still not recovering," Gordon said. "It is a one-industry state. Gaming drives construction. Gaming drives housing. Michigan is probably a more diverse economy than Nevada in many ways."

About 120 holders of secured debt were left with ownership stakes in Herbst Gaming. They include Wells Fargo Bank, U.S. Bank, Bank of Scotland, American International Group, Highland Capital Management and Apollo Investment Corp.

They may sell the gaming enterprise through an initial public offering for stock in the reorganized company -- although Ehlers doubts Wall Street will have much appetite for casino stocks in the near term.

In other casino bankruptcy cases, an investor may buy debt from the casino operator and end up owning the company when it emerges from bankruptcy court, Gordon said.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.