Over creditor objections, bankruptcy judge OKs Station rent agreement

By Cy Ryan (contact)

Friday, Dec. 11, 2009 | 7:59 p.m.

Station Casinos properties

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RENO — Despite objections from creditors, a federal bankruptcy judge has approved a plan to reduce the rent Station Casinos Inc. pays to lease from itself four of its most valuable hotel-casinos as the Las Vegas company tries to work out a reorganization plan.

U.S. Bankruptcy Judge Gregg Zive on Friday warned all the parties he wants to see progress in the next three months toward a reorganization plan for the company that has 18 casinos and sought bankruptcy protection this summer after the recession left it unable to meet its debt obligations.

And he told them they better start meeting with state gaming regulators to work out a possible transition if and when the bankruptcy plan is adopted.

“This is a heavy regulated industry and you better coordinate with the regulatory agencies,” he told the lawyers in a hearing that lasted more than five hours.

Zive said his approval of the compromise plan “protects the value of the properties and secures the interest of the lenders in these properties.”

The proposal calls for a reduction of $7.7 million per month for December, January and February. When Station went private in 2007, four of the properties were spun off into a subsidiary called PropCo, and the clubs continue to be managed by Station.

Station has been paying to lease the properties and the reduced rent for these properties will be about $13.8 million a month, according to bankruptcy court filings.

The four are Palace Station, Boulder Station, Sunset Station and Red Rock Resort, which are under PropCo.

Zive told the parties that this 90-day agreement will give them time to work out a reorganization plan. He also extended through March 25 the exclusive right of Station to come up with the plan before other parties can file alternative plans.

He said there were differences between the lenders of PropCo and another group of lenders. He said this was more than an economic struggle between lenders to achieve a better position. It’s about jobs --- estimated to be 6,300 --- Zive said.

“The collateral economic effect would be significant,'' without preservation of the lease, he said.

Shalom Kohn, a New York attorney represent some of the lenders to PropCo., complained his group was not even notified about the compromise plan being considered.

“Nobody talked to us about the deal,” Kohn said, adding “$20 million was due yesterday. Where’s the protection for us?”

Zive said the compromise plan was between the two casino companies and the lenders did not have standing to be involved.

The judge said, “I do not know the ultimate resolution” of this bankruptcy. “Maybe the PropCo lenders will end up being the owners. They are not yet.”

Thomas Kreller, a Los Angeles lawyer representing Station, told Zive this was a fair compromise and it was important there be a “bridge” while further plans are worked on.

Zive told the parties, “I am confident this will be the final extension.” He said this lasts until mid-March “and if it goes past then, except for extraordinary circumstances, it will not happen.”

Michael Wilson, chief deputy attorney general in the state’s gaming division, told the judge any change in ownership must be properly regulated. He added “We don’t want to put 6,000 people out of work.”

He said the regulators could adopt an emergency regulation to keep the casinos open and get a court-appointed supervisor to run them if the reorganization fails.

So far there has been no contact with state gaming regulators about a transition period. Zive said, “There can’t be any delay in taking this to the regulators.”

The company wants to keep the casinos open during the bankruptcy proceedings. But Zive stressed there better be some progress made on a reorganization plan in the next 90 days.

“I understand there are negotiations. If you need two or three tables, get them,” referring to getting the creditors, the company and others together.

The judge also allowed the Special Litigation Committee of the Station board of directors to hire Global Gaming and Hospitality to analyze the master lease transactions in which PropCo was created and encumbered by $2.475 billion in debt.

The rental payments totaling $250 million per year have been covering the payments on that mortgage debt, and some creditors have been demanding reductions in the rent -- charging the rental rate is unrealistic given the recession has reduced the value of the casino-hotels.

Scott Kane, attorney for the litigation committee, said it did not have the sources to look into these transactions.

Eric Winston, attorney representing the unsecured creditors, argued against allowing the hiring of Global Gaming. He said his group has already examined these leases and it would be duplicative of the creditors' work.

But Kane successfully argued that there must be an independent examination of the situation.