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Mona Shield Payne / Special to the Home News
Kicking off the grand-opening celebration of Aliante Station Casino and Hotel in November 2008, colorful fireworks illuminate the northern sky above hundreds of spectators anxiously awaiting the doors to open.
Monday, Feb. 9, 2009 | 2 a.m.
Sun archives
Station Casinos bondholders are being asked to approve a prepackaged bankruptcy restructuring deal that involves exchanging their bonds for others worth less money, with a cash sweetener. Bondholders could accept the deal, expediting the court process and keeping the Fertitta family at the helm of the company. Or they could reject it and force the company into traditional bankruptcy, where creditors are on their own.
Last year, Station offered to exchange the bonds for discounted ones that would have been worth more than what the company is offering now. The kicker this time around is a proposed $244 million cash infusion from owners Frank and Lorenzo Fertitta and partner Colony Capital.
The idea is similar to the $1 billion infusion made by Las Vegas Sands Chief Executive Sheldon Adelson and his family last year. The cash reduced the company’s debt to a more manageable level, preventing lenders from forcing the company into bankruptcy.
At a time when company owners are either booted by investors for letting their companies fall into the hands of bottom-feeding creditors or competitors, these epic bailouts look like throwbacks to another era.
Cut off from bank loans and traditional financing during its early days, the casino industry relied on the wealth of a small group of insiders who understood its peculiarities.
The Fertittas, who learned the business from their father, have always viewed their industry as a long-term growth opportunity and chafed under the quarterly profit-driven demands of Wall Street.
It’s up to bondholders to decide whether the Fertittas know more about their business than anyone else and should be running the show.
If the economy doesn’t recover as Station expects it will, that $244 million, just like Adelson’s billion-dollar investment, will disappear.
Analyst Barbara Cappaert of bond research firm KDP Investment Advisors says such cash infusions by owners are unusual in this downturn. Many struggling companies have offered bondholders discounted notes to reduce interest costs but have put no new cash, as equity, into their companies.
Among them is Harrah’s Entertainment, which has a debt problem similar to Station’s after going private in early 2008. Private equity owners Apollo Management and TPG didn’t put in any cash to sweeten that bond exchange.
“Some equity holders are waiting to determine just how low this market goes, they’re walking away, or they don’t have the money to get back in,” Cappaert said.
Putting in new equity is better for bondholders than last year’s offer, but Cappaert said bondholders would still like to get more for helping Station restructure.
With a piece of the equity, bondholders would be able to participate in more of the upside if the economy recovers by 2010, Cappaert said. This plan would keep Station’s bank lenders satisfied through the rest of this year, she said.
Bonds can rise from depressed levels but are worth only face value, whereas stocks are also valued based upon future opportunities and other intangibles.
With earnings down, no major gaming deals to speak of and financing virtually nonexistent, Station’s unsecured bonds are trading at about 25 cents on the dollar and its subordinated bonds are trading at about 4 cents on the dollar — leaving a lot of room, Cappaert said, for improvement.
Some major law firms are depending on cash infusions from partners and even associates to stay afloat. But that’s peanuts compared with the bailout offers from Adelson and the Fertittas.
“It’s a substantial risk,” said Mel Jameson, a professor of finance at UNLV. “They are making an investment that the market as a whole is unwilling to do. But they have the resources and are familiar with the reality of the business.”
Correction: This story has been changed to reflect that owners Frank and Lorenzo Fertitta and partner Colony Capital are proposing a $244 million cash infusion, not $244 billion.
I was at Fiesta Henderson yesterday, and it looked quite busy to me. Which raises the question of whether the business model may be failing for Stations. Why did they go nutty building Red Rock and Aliante? What's the matter with smaller casinos that cater to the locals? I remember the good old days, maybe 2005, when one of the F boys said they had no problems because they had a 200 million dollar credit line "at any time." I remember in 2002, when Sunset Station was called a "cash cow" in the RJ. Ah, times change, and what do you do with empty casinos? Bus stations? Cheap hotel? Boy, did they screw up big time. Bondholders need to face reality-BK is better than supporting the Fertittas opulent lifestyle. Do it....
Me!
It's about time the bond holders took over the company.Get it out of the hands of these rich people who want to keep control of the company and their money.
What a bunch of idiots. Do you think the bond holders are not also rich people trying to hang on to their money. Why not take it away from the owners and the bond holders and let the unions and employees run it. They always seem to know better than those darn rich folks. I guess we want a French Revolution with public executions to get rid of anyone that ever climbed higher on the social ladder than I.
Frankly I don't care if they go out of business...they certainly had no concern over my money during my last visit to their casino..driving all the way from WA. state, stayed over at Boulder S. and it was the most depressing stop in LV we have ever had. No Fun At All!
It certainly is NOT the Fertitta's
Boycott Stations!
This isn't an operational issues. The Fertittas are the best at operating these joints. It's a finance issue, which got worse as the business declined. There is no one who knows as much about the Station casinos as Frank & Lorenzo. Removing them would be folly.
"Boycott Stations!"
And what about the lowly employees? Make them suffer and lose their jobs because you hate the Fertittas?
Um...no. Too lame for words!
johnevegsa, you obviously do not understand the bankruptcy
process. these joints will stay open even in bankruptcy.
neiman1 Your ignorance is bliss. The unions have nothing to do with bonds or bondholders. You and your juvenile riciculous rants about things that are not rerelevant are annoying. This is not about the social ladder it has to do with the rich investor,the average investor, the
institutional investor making a choice about who runs the show with their money. Your comparison to the French is so lame it is beyond belief. The point of the article is are the Fertittas competent enought to run Satation Casinos nit wit. If you knew anything about the Fertittas and how they have ruined their own empire while bankrupting thousands of investors they courted you would not make a fool of yourself with this kind of bs. No where is the unions,social ladder climbing or wealth seeking as you put it is a point in the article. Do you ever stop? No one is taking anything from the bondholderds.The bondholders have a choice to make it is that simple.Now go read Yahoo finance and see why they think Sation Casinos are done. Think before you post.
Boycott Neiman1
"johnevegsa, you obviously do not understand the bankruptcy process."
Sure I do, especially how to avoid them. But I was speaking of the suggestion of a boycott, which is lame, because it would hurt the employees who have nothing to do with Stations problems.
See? No bankruptcy mentioned.
By the way, what in the hell is Vegsa? Sounds like a pizza I had once.
At this point, I think the bondholders would be foolish to turn it down. While the Fertitta's have been rightfully spanked lately, I don't see a better alternative for managing these properties. Maybe I'm giving them too much credit, but I think they've learned some lessons in the last few years, and probably won't repeat them. And it's not like they're the only group that got caught overextended. It's industry wide. Who would be brought in to run the company? I just don't see anyone better. Maybe it's a case of the "lesser of all the evils".
I don't see bankruptcy being a better alternative either given the financing climate. In my opinion, the bondholders need to accept the proposal, sit tight, give up on a quick return, and ride out the economic downturn. I'm sure Vegas will recover in some form, and Stations long term will be ok. If they don't start to recover in the next year or so, then there are bigger problems with Vegas than just these smaller properties.
Silly me, I forgot to respond to neiman.
While the whole "public executions" deal sounds fun and all, it's probably more toruble than it's worth. Although there are days...
As far as the unions go, don't get me started. Ask the auto industry how well it's gone over the last 20 years with the UAW and various smaller unions running the industry. It just doesn't work. It spreads the wealth over a slightly larger group, but it's more detrimental long term. If you're still not convinced of that, just talk to the machinists at Boeing, or the flight attendants, ramp workers, or mechanics in the airline industry.
It's just my opinion, but I feel unions are somewhat antiquated. Now that I really think about it, I can't think of any unions that are good for the long term health of the workers and the companys they're in. Can you think of any neiman?
harske Regarding neiman1 you really should try to recognize stupidity mixed with sarcasm. Silly you, I'll bet you are not old enough to remember the struggles unions made to make life better for all working people including yourself. Many if not most of the benefits you take for granted today at your job were unheard of and forbidden until unions won them in serious labor negotiations and labor struggles. Were there problems with some union actions? Certainly, just as there are with a majority of progressive movements that make changes.
You positon with the auto industry,Boeing and the airline industry are not what you make themout to be rather they are failures on management to follow markets,make changes regarding markets and keep their eye on the objective. That is the job of management. Today mangement thinks they just have to show up and get huge bonuses.The airline industry wanted deregulation and in turn gave up cheerished protection regarding valuable air routes, thinking they could out dual each other and become number one and all of them lost. I'll also bet you are not old enough to understand what protected routes are and how the Interstate Commerce Commission enforced them .
Do some research and think before you post regurgitated blather. Why would anyone want to get you started when you don't know the facts.
Homer, based on the nearly unintelligible misspelled content of your last post, it is obvious that you qualify to be a business agent. Or a union steward. Before you criticize other writers, you might want to attend a high school dropout academy. We have many of them around the Valley-you would excel being with your peers.
homer...
I respect your opinion, but I disagree. I'm actually 40, so I've seen enough to know what's going on. I've been part of two unions in my time, and if I'm never part of one again I'll be just fine.
Your initial point regarding the things we have nowadays is very true. Some of the improvements in benefits and working conditions got their start during the union heydays. But that's more in the past than it is now. Which was precisely my point. While unions definitely had a place at one time, they're antiquated and somewhat irrelevant now. Certainly not all, but most from what I've seen.
I also don't totally agree with your view on management. You won't get an argument from me that big business management is really to blame for alot of blunders, especially lately. But when you factor that the cost of an average car is almost 20% higher than it could be simply because of union pay and benefits, how exactly does management combat that? Name one big business that has a substantial union presence that isn't suffering worse than they could be because of that union? The unions haven't done much lately except make unreasonable demands for the situations. The machinists at Boeing made a stand, and production shut down for quite a while there. That couldn't have come at a worse time for Boeing because of 787 issues and lost sales, which the union used as leverage. So by making the stand that they did, and gaining some concessions from Boeing only to have Boeing turn around and lay off 10k people partly because of those concessions, how exactly did that help anyone? What were they hoping to gain by asking for more from a source that had diminishing revenues as it was?
Please don't take me to task for not researching anything. I have a fairly significant amount of money I invest in the stock market, so I assure you I do plenty of research. I don't regurgitate anything. I'll occasionally throw numbers out that I've found, usually in more than one source as to have verification. But I don't regurgitate. Pretty much all of my opinions are original. It's not my fault if they back up something someone else has stated.