Boyd makes play for Station properties

By Liz Benston

Published Tuesday, Feb. 24, 2009 | 2 a.m.

Updated Tuesday, Feb. 24, 2009 | 3:06 p.m.

Boyd Gaming has long sought to keep pace with Station Casinos — its more aggressive and, until recently, more profitable competitor in the suburban Las Vegas casino business — with mixed results.

With Station facing imminent bankruptcy court filing, Boyd, the No. 2 locals casino company, has found an opening. On Monday, Boyd pounced with a $950 million offer for most of Station’s casinos, including its Texas, Aliante, Santa Fe and Green Valley Ranch Station casinos and its two Fiesta properties.

The fate of Station Casinos’ bosses, who had hoped to keep control of their company during the disruptive bankruptcy reorganization process, has been thrown into doubt. Boyd’s surprise offer raises even more questions about how the Fertitta family will emerge from this financial debacle.

The Boyd offer, which is subject to a review of Station’s books, would exclude four casinos — Red Rock Resort and Boulder, Palace and Sunset Stations — that are not part of a proposed Station restructuring plan with its bondholders.

In a letter to Station’s board of directors, Boyd Gaming Chief Executive Keith Smith said his company also would consider purchasing Station’s remaining assets if its competitor is willing to part with them. Boyd Gaming officials declined further comment on the company’s unsolicited offer.

Station Casinos spokeswoman Lori Nelson said the company will evaluate Boyd’s proposal, though “we intend to continue to work with our lenders and bondholders to pursue our previously proposed plan of reorganization.”

This month Station offered to exchange bondholders’ notes for ones worth cents on the dollar. The offer would forgive about $1.9 billion of the company’s debt in return for a $244 million cash infusion from owners Frank and Lorenzo Fertitta and private equity partner Colony Capital.

The plan would improve Station’s financial outlook and keep the Fertittas at the helm.

But critics question whether Chief Executive Frank Fertitta III and his brother, co-owner Lorenzo Fertitta, are worth the debts they want bondholders to forgive.

Secured lenders, such as banks, are expected to recover most if not all of what they are owed by Station in a bankruptcy, while bondholders, who are paid after the banks, aren’t guaranteed to recover their investments and will likely get cents on the dollar, insiders say. That means bondholders, called unsecured creditors, could end up determining the company’s fate.

Enter Boyd, whose offer focuses on the Station properties that are financed by publicly traded bonds. In the letter, Boyd says the $950 million cash offer would be superior to Station’s deal for bondholders.

Station owns the Green Valley Ranch and Aliante casinos as well as the Greens, Wildfire and Barleys locations in Henderson with the Greenspun family, which owns the Las Vegas Sun.

Boyd's offer would include a bid on Station's 50 percent interest in these properties, which weren't financed with the bonds in question.

While lenders want the biggest possible return on their money, Boyd’s offer may also solve another, and perhaps greater, concern for lenders.

The casino business, subject to state regulation and lengthy background investigations, has a limited number of key players. Expertise is consolidated in a few companies that began as family-run legacies and now have generations of experience.

The Fertittas transformed a company with humble roots into one of Las Vegas’ largest and most successful employers. A Wall Street darling before the downturn, Station Casinos has suffered more than most from the recession because of an ill-timed buyout in late 2007, which racked up debts of more than $5 billion as earnings began to fall.

Boyd, which has competed head-to-head with Station in some neighborhoods, is more similar to its sometime adversary than any other casino company.

Deutsche Bank stock analyst Bill Lerner said the offer would benefit Boyd by giving the company control of multiple casinos at an attractive price. It’s also encouraging for lenders, Lerner said, given that Boyd is a dedicated presence in Las Vegas and is familiar with the business.

Downturns often pave the way for epic consolidations.

In the gaming industry, some of the biggest players in this recession have been companies that failed to execute growth plans made during the real estate boom, when credit was cheap and plentiful.

Boyd halted its $5 billion Echelon resort complex on the Strip when development partners couldn’t get financing. Now, Boyd has a revolving credit line of about $2 billion — enough, Boyd says, to finance its offer for Station.

Bondholders might prefer to have Boyd running the casinos than taking control of the properties in bankruptcy, hoping to retain all of the top talent. Lenders don’t want to manage casinos, in any case.

“These are the top managers in the business,” Las Vegas gaming attorney Jeff Silver said. “Someone who doesn’t know what they are doing is going to burn through cash that much quicker.”

Before bondholders decide Station’s fate, with or without Boyd’s help, Station owners will have yet another opportunity to make their case.

The bankruptcy process, which generally favors debtors over creditors in the battle for control of a company, gives companies a chance to present a reorganization plan in court.

Bondholders have until the end of the day March 2 to vote on the proposed exchange offer. Station is expected to file for bankruptcy court protection after bondholders vote.