6. LONG-TERM DEBT, COMMON STOCK WARRANT LIABILITY, AND SUBSEQUENT EVENT

Long-Term Debt

Debt Refinancing: Notes Issuance. On February 12, 2021, the Company refinanced its existing outstanding Senior Secured Notes due 2024 (the “Prior Notes”) with the issuance of $310 million aggregate principal amount of 8.25% Senior Secured Notes due 2028 (the “2028 Notes”). Accordingly, the previously expected current maturities under the Prior Notes are reflected as long-term as of December 31, 2020. The 2028 Notes bear interest at a fixed rate of 8.25% per year and mature on February 15, 2028. There is no mandatory debt amortization prior to the maturity date. Interest on the 2028 Notes is payable on February 15 and August 15 of each year, with the first interest payment date due on August 15, 2021.

 

The net proceeds from the sale of the 2028 Notes were used to redeem all of the outstanding Prior Notes (including a 0.90% prepayment premium) and to repurchase all outstanding warrants. Additionally, $180 million of bond proceeds were placed into a construction reserve account to fund the remaining costs to complete the Cripple Creek Project. Accordingly, this amount will be recorded as restricted cash in 2021. Remaining proceeds were used to pay the transaction fees and expenses related to the offering of the 2028 Notes, and approximately $8 million was added to our unrestricted cash and equivalents.

 

The 2028 Notes are guaranteed, jointly and severally (such guarantees, the “Guarantees”), by each of the Company’s restricted subsidiaries (collectively, the “Guarantors”). The 2028 Notes and the Guarantees will be the Company’s and the Guarantor’s general senior secured obligations, subject to the terms of the Collateral Trust Agreement (as defined in the Indenture), ranking senior in right of payment to all of the Company’s and the Guarantor’s existing and future debt that is expressly subordinated in right of payment to the 2028 Notes and the Guarantees, if any. The 2028 Notes and the Guarantees will rank equally in right of payment with all of the Company’s and the Guarantors’ existing and future senior debt.

The 2028 Notes also contain representations and warranties, customary financial covenants, and restrictions on dividends. Mandatory prepayments of the 2028 Notes will be required upon the occurrence of certain events, including sales of certain assets, upon certain changes of control, or should the Company have certain unused funds in the construction disbursement account following the completion date of the Cripple Creek Project.

The Company may redeem some or all of the 2028 Notes at any time on or after February 15, 2024, for cash at the following redemption prices.

 

On or prior to February 15, 2024, the Company may redeem up to 35% of the original principal amount of the 2028 Notes with proceeds of certain equity offerings at a redemption price of 108.25%, plus accrued and unpaid interest to the redemption date. In addition, the Company may redeem some or all of the 2028 Notes prior to February 15, 2024 at a redemption price of 100% of the principal amount of the 2028 Notes, plus accrued and unpaid interest to the redemption date and a “make-whole” premium.

Prior Notes and Waivers. On February 2, 2018, the Company sold $100 million of senior secured notes due 2024 to qualified institutional buyers. On May 10, 2019, the Company sold an additional $10 million in aggregate principal amount of its senior secured notes due 2024. Collectively, the Prior Notes were due to mature on February 2, 2024 and included quarterly principal payments as defined and interest based on the greater of the three-month London Interbank Offered Rate (“LIBOR”) or 1.0%, plus a margin rate of 7.0%. The Prior Notes also had a prepayment premium of 1.9% as of December 31, 2020, which declined to 0.9% on February 2, 2021.

The Prior Notes contained customary representations and warranties, events of default, and positive and negative covenants, including financial covenants. The Company was required to maintain a total leverage ratio, which measured Consolidated EBITDA (as defined in the indenture) against outstanding debt. Due to the impact of the COVID-19 pandemic on the Company’s business operations in 2020, the Company executed amendments to delete the total leverage ratio covenant as of March 31, June 30, and September 30, among other items. Due to the refinancing of the Prior Notes in February 2021, no total leverage ratio covenant was applicable as of December 31, 2020.

The Prior Notes were collateralized by substantially all of the Company’s assets and were guaranteed by all of its material subsidiaries.

Unsecured Loans Under the CARES Act.  On May 8, 2020, two wholly-owned subsidiaries of the Company executed promissory notes (the “Promissory Notes”) evidencing unsecured loans in the aggregate amount of $5,606,200 through programs established under the CARES Act (the “Loans”) and administered by the U.S. Small Business Administration (the “SBA”). Such funds were principally used to rehire several hundred employees at Rising Star and Bronco Billy’s in advance of, and subsequent to, their reopenings in mid-June. The Loans were made through Zions Bancorporation, N.A. dba Nevada State Bank (the “Lender”), bear interest at a rate of 1.00% per annum, originally had a two-year term and provide for customary events of default.

Recently-passed legislation extended the original maturity dates to May 3, 2025 with no change to the annual interest rate. After a 15-month deferment period for principal and interest payments, the Company is required to make monthly loan payments totaling $128,557 beginning in September 2021 to the Lender. The Loans may be prepaid at any time prior to maturity with no prepayment penalties. Such Loans may be forgiven, either in whole or in part, depending on the amount of such proceeds that are used for certain eligible expenses over a 24-week period, including primarily the payroll and health benefits of employees who might otherwise be without jobs or health benefits. The Company intends to seek forgiveness for all Loans, which will also require it to make certain certifications that will be subject to audit and review by governmental entities, though there is no certainty that any or all of such Loans will be forgiven.

Long-term debt, related discounts and issuance costs consisted of the following:

 

Maturities of Long-Term Debt. Prior to the debt refinancing in February 2021, future maturities of long-term debt as of December 31, 2020 were:

 

Common Stock Warrant Liability

On February 12, 2021, the Company used some of the proceeds from the 2028 Notes offering to redeem all of its outstanding warrants. As part of the Company’s former Second Lien Credit Facility, which was retired in 2018, the Company granted the second lien lenders 1,006,568 warrants. The warrants had an exercise price of $1.67 and were set to expire on May 13, 2026. Using our closing stock price on February 12, 2021, the day we completed the warrant redemption, the net repurchase price would have been more than $6.0 million. Our actual repurchase price to redeem the warrants was $4.0 million, a 34% discount to such amount.

Under the terms of the warrant agreement, the warrant holders could have required us to redeem or register their outstanding warrants on any six-month anniversary of the February 2018 refinancing of their loan, prior to warrant expiration. Accordingly, the obligation is reflected as a current liability as of December 31, 2020.

The Company measures the fair value of the warrants at each reporting period using Level 3 inputs (see Note 2). Due to the variable terms regarding the timing of the settlement of the warrants, the Company utilized a “Monte Carlo” simulation approach to measure the fair value of the warrants. The simulation included certain estimates by Company management regarding the estimated timing of the settlement of the warrants. Significant increases or decreases in those management estimates would result in a significantly higher or lower fair value measurement. At December 31, 2020, the simulation included the following assumptions:  an expected contractual term of 5.37 years, an expected stock price volatility rate of 64.6%, an expected dividend yield of 0%, and an expected risk-free interest rate of 0.42%. The Company also used the Monte Carlo simulation approach for its valuation at December 31, 2019, which included the following assumptions:  an expected contractual term of 6.37 years, an expected stock price volatility rate of 46.87%, an expected dividend yield of 0%, and an expected risk-free interest rate of 1.79%. The Company recognized $0.6 million of other non-operating expense in 2020 and $1.2 million of other non-operating expense during 2019, associated with changes in the fair value of the warrant liability.