Investors applaud Boyd interest in Station buyout

By Richard N. Velotta

Friday, Feb. 27, 2009 | 2 a.m.

Boyd Gaming’s surprising “indication of interest” to purchase most of Station Casinos’ assets for $950 million received a warm welcome by investors who consider it to be a possible shift in Boyd’s direction.

Boyd delivered a letter Feb. 23 to Station Chief Executive Frank Fertitta outlining its nonbinding preliminary offer that would lead to Boyd taking over Station properties except for assets secured in loan covenants — in essence, everything except Red Rock Resort and the Palace, Boulder and Sunset stations.

Station’s interests in Green Valley Ranch and Aliante Station, half owned by the Greenspun family, which owns In Business Las Vegas, would be included in the deal. Boyd also said in its letter that it’s interested in acquiring the four properties that secure the loans.

Station executives acknowledged receiving the letter, adding they “intend to continue to work with our lenders and bondholders to pursue our previously proposed plan of reorganization, but we will evaluate the terms of Boyd Gaming’s proposal.”

Neither company offered details beyond its released statement.

But some analysts said the move could represent a fundamental shift in Boyd’s priorities. The market reacted by lifting Boyd shares 36.8 percent to $4.65 on Feb. 24, the first day of trading after the announcement.

The deal represents a better offer than Station management had presented to bondholders as the company moves toward a prepackaged bankruptcy filing. Under terms of that deal, most bondholders would get 10 cents on the dollar and 40 cents on the dollar in new debt when the company emerges from bankruptcy protection.

Boyd, which has cash available after shutting down construction of Echelon on the Strip in August, said it has about $2 billion in available liquidity under its revolving credit facility. The company, which has retained UBS Securities as a financial adviser in the proposal, said it is “prepared to commit the necessary resources to complete a transaction as quickly as possible.”

In its letter, Boyd said it is interested in either acquiring Station assets as a “stalking horse” bidder in Bankruptcy Court, as a co-sponsor or plan proponent with Station or another debtor in a consensual plan or reorganization or as a competing plan proponent.

“Such a transaction would make sense for Boyd, given their expertise in operating locals-oriented casinos and we believe the company is better suited than most other gaming companies to manage any Station assets that might be sold,” said Deutsche Bank gaming analyst Bill Lerner, in a note to investors.

“We believe Boyd is opportunistically stepping in after current (Station) management made a lowball effort to reduce debt levels,” added Steve Wieczynski, an analyst with Stifel Nicolaus Capital Markets. “Boyd is also indicating it still believes in the long-term Vegas locals market despite recent weakness.”

But he added by acquiring Station assets, Boyd “would jeopardize any potential purchase of the remaining equity in the Borgata from MGM Mirage,” a proposal that both companies have had on the back burner.

Boyd, second to Station in the Las Vegas locals market, would command one-third of the local market if the deal were successful, and analyst Lawrence Klatzkin of Jefferies & Co. wrote that the Station assets “would add nicely to Boyd’s current portfolio.”

Company officials did not speculate on when Station would evaluate the Boyd proposal, but bondholders have until March 2 to vote on Station’s prepackaged bankruptcy plan. The plan would be submitted to Bankruptcy Court if two-thirds of the bondholders approve it. At the time the package was announced, Station had received the support of lead senior lenders.