The largest shareholder in Las Vegas-based casino operator Affinity Gaming LLC is throwing its weight around, seeking representation on the board of directors as it criticizes what it calls an improper insider payment arrangement.
In a Securities and Exchange Commission filing Tuesday, Z Capital Partners LLC of Lake Forest, Ill., and affiliates including President James Zenni said they had accumulated a nearly 25 percent stake in Affinity with just over 5 million shares acquired over several months for $58.7 million.
Most of the shares were acquired by converting Z Capital's debt investment in Herbst Gaming into equity during the Herbst bankruptcy reorganization. Herbst Gaming changed its name to Affinity Gaming after the bankruptcy.
Z Capital and Zenni said in the filing they had asked the Missouri Gaming Commission for a "change in control" ruling allowing them to own more than 25 percent of Affinity.
The filing didn't say Z Capital wants to take control of Affinity in the short term, just that it wants to increase its stake to more than 25 percent. "In the longer term, potentially," its stake could exceed 50 percent, Z Capital said.
"In addition, Z Capital intends to seek representation on Affinity's board. Z Capital has no plan or intention of changing the management of Affinity. Z Capital anticipates it will fully support current management, which appears to be operating the company's facilities in a highly compliant and productive way," the Missouri filing said.
However, in an Oct. 19 letter to the Affinity board of directors, Z Capital said it was concerned that "certain members of the board authorized a special investment banking payment to the chairman in connection with recent asset dispositions, apparently for services allegedly rendered in connection with those transactions.''
A Z Capital spokeswoman couldn't immediately identify a public disclosure of this payment by Affinity referenced in the Z Capital letter. A request for comment was placed with Affinity.
The chairman of Affinity is Don Kornstein, a veteran investment banker and gaming executive who previously was the CEO of Jackpot Enterprises and a director of SHFL entertainment (formerly Shuffle Master) and other companies.
"It is our strong view that the payment of such fees to a company director creates an obvious, material and inappropriate risk of a conflict of interest, is an extremely poor governance practice and should never have been considered, nor be permitted in the future," the Z Capital letter said.