Station Casinos unveils restructuring plan to appease creditors

By Liz Benston

Published Tuesday, Feb. 3, 2009 | 7:05 p.m.

Updated Tuesday, Feb. 3, 2009 | 7:21 p.m.

Station Casinos on Tuesday announced a restructuring plan aimed at strengthening the company’s financial position and keeping lenders at bay.

Under the plan, known as a prepackaged bankruptcy, Station's parent company would file for Chapter 11 bankruptcy protection in court under a plan prepared in cooperation with lenders. Bondholders would vote on the plan before the bankruptcy filing, expediting the process.

The company could emerge from bankruptcy by summer.

The plan, which has received the support of senior lenders, would allow the company to continue operating as normal by requiring Station executives Frank and Lorenzo Fertitta and private equity partner Colony Capital to put up $244 million in cash.

With the cash infusion, Station expects to dodge a bullet by appeasing creditors who have the power to demand repayment on outstanding loans and comes at a time when the Las Vegas community is concerned for the health of one of its largest employers.

Last year, lenders turned down Station’s offer to exchange their debt for a discounted price. At the time, Colony was seeking to raise money to pay down bank loans. When Colony couldn’t get the money, this plan emerged in discussions with senior lenders, which dictated the terms.

As part of this process, Station elected not to make a $14.6 million interest payment due Monday on $450 million in notes due in 2014. That payment schedule has a 30-day grace period which ends March 3. Lenders have until the end of day March 2 to vote on the plan.

The plan requires approval from two-thirds of senior lenders as well as the same percentage of unsecured lenders, who are repaid after senior lenders in the event of bankruptcy. Station’s owners have offered to pay unsecured lenders a combination of cash and new notes. If enough lenders approve the plan, all creditors would be bound to the terms of the agreement.

Station has about $350 million in cash on hand – enough to pay bills and make interest payments. The bigger problem for Station has been paying down more than $2 billion in debts incurred when the company went private in a $9 billion deal in 2007. Earnings soon plummeted in the recession.

Frank and Lorenzo Fertitta own about 20 percent of the company and Colony, which put up most of the money for the management-led buyout, owns about 75 percent. Their ownership stakes would remain the same under the deal.

Station expects a 19 percent decrease in revenue and operating losses of $2 million in the fourth quarter compared with the same period a year ago – further evidence that business worsened toward the end of 2008 during an already slow period for Las Vegas. Earnings before interest, taxes, depreciation and amortization – a commonly used profit benchmark in the casino business – is expected to decrease in the range of 23 percent to 26 percent, executives said.

“We have an outstanding company, a loyal customer base and we believe we have the best team members in the industry,” Station Chief Executive Frank Fertitta III said in a statement. “It is no secret that current economic conditions in our country have had an adverse effect on Las Vegas in general and the casino business in particular. However, we believe that the steps we have taken and those we are proposing to take will result in our company being well positioned for the future.”

Station has been one of the hardest hit locally by the downturn, as its earnings growth was dependent upon the population and real estate boom in Las Vegas as well as discretionary income – all of which have been battered in the recession.

The company has laid off workers and reduced operating expenses but hasn't sold any properties or development opportunities for new casinos in the pipeline.