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Station Casinos: Bankruptcy date depends on bondholders

In court filing, company fights injunction sought by bondholder

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Justin M. Bowen

Station Casinos is the dominant locals gaming company with properties such as Red Rock Resort, Green Valley Ranch Resort, two Fiestas and the Sunset, Boulder, Palace, Santa Fe and Texas Station properties. Aliante Station is shown here.

Updated Wednesday, March 18, 2009 | 6:58 p.m.

Station Casinos Inc. executives moved Wednesday to clarify when the company may file for bankruptcy protection, saying there's no assurance the filing will be made on or before April 15 as suggested in a court filing.

Scott Nielson, executive vice president and chief development officer, said the plan for Station to file for bankruptcy on or before April 15 mentioned in court papers would only kick in if Station reaches agreement with major bondholders on a plan for Station to file a prepackaged bankruptcy petition.

He said that if an agreement is not reached with the bondholders by an April 10 deadline, a forbearance agreement now in affect through April 15 could be extended so negotiations could continue. If the forbearance agreement is extended, Station has sufficient cash and cash flows to maintain operations after April 15, he said.

Another option, one not favored by Station, is for the company to make a regular Chapter 11 filing. That could happen if an agreement with bondholders is not reached.

One of the reasons the prepackaged bankruptcy is being sought by Station is because it would leave Station's operations running normally with little or no affect on customers, employees and vendors, Nielson said.

In the meantime, he said, Station executives and employees continue working "to provide the best guest experience possible.''

As first reported by the Sun, the April 15 date was mentioned in court papers filed Monday by Station opposing a motion for a court injunction sought by a bondholder who is seeking to block the debt-exchange, a key part of the pre-packaged bankruptcy petition that includes a cash infusion of $244 million by Station owners the Fertitta family and Colony Capital.

Boyd Gaming Corp., in the meantime, has been taking its case to buy all or part of Station directly to bondholders after it was rebuffed by Station.

With its revenue and cash flow hurt by the recession, Station has proposed the prepackaged Chapter 11 bankruptcy reorganization because of its inability to keep up with debt payments. In all, it's trying to restructure more than $5 billion of debt.

In U.S. District Court in Las Vegas, bondholder S. Blake Murchison is represented by class-action securities lawyers who are seeking an injunction to block the exchange offer in which Station would reduce its debt by exchanging $2.3 billion in bonds for cash and notes at exchange rates of 10 cents to 50 cents on the dollar, depending on the class of bond held. The deal is aimed at saving the company some $100 million per year in interest costs.

The bottom line, Murchison argues, is that the exchange offer will improperly subordinate existing bonds during a Station bankruptcy and that only certain classes of bondholders are allowed to vote on the deal.

Station, however, argues Murchison's case is without merit because all note holders will receive the same payment for their classes of bonds, regardless of whether they are allowed to vote on the exchange offer.

In court papers, Station called Murchsion a "gadfly'' who is represented by securities lawyers in also suing Harrah's Entertainment Inc. over a Harrah's debt-exchange deal.

Station said the debt-exchange and reorganization plan should move forward for the good of the Las Vegas community, where Station is the dominant locals gaming company with properties such as Red Rock Resort, Green Valley Ranch Resort, two Fiestas and the Sunset, Boulder, Palace, Santa Fe, Texas and Aliante Station properties.

"To the extent that plaintiff believes there is something improper about the prepackaged bankruptcy plan that Station is pursuing, he may pursue his rights with all other creditors in the bankruptcy case (which Station expects to file on or before April 15),'' Station said in court papers opposing the injunction.

"Plaintiff's motion is an attempt by a single bondholder (represented by a prominent class action law firm) to gain leverage by acting as the 'fly in the ointment' and seeking to halt the efforts of Station to restructure its business in a manner designed to minimize the costs and business interruption that would be caused by a lengthy bankruptcy case,'' Station argued, adding a prepackaged bankruptcy is a more efficient way for it to restructure its debt.

Station said it "will be irreparably harmed if the injunction is granted.''

"Station will, in effect, be stripped of the ability to pursue a prepackaged bankruptcy plan and will be forced to commence its Chapter 11 case immediately. Station will lose the ability to streamline the restructuring proceedings. And Station's creditors, employees and the local community will suffer immensely as a result,'' Station said in its motion opposing the injunction.

"The public interest is particularly compelling here. In this economic environment, which has hit Las Vegas particularly hard, the public interest strongly favors an expeditious restructuring,'' said Station's motion.

"Station employs over 13,000 people and plays an important social and economic role in the local community. There is no reason to needlessly jeopardize the economic health of this company and its various constituencies so that a single bondholder can pursue spurious claims outside of the established restructuring process.''

Station also filed a declaration by General Counsel Richard Haskins saying that the institutional holders of bonds that are voting on the Chapter 11 reorganization plan represent, among the note holders, a super-majority in interest and a majority in number.

Station is represented in the suit by attorneys Todd Bice and Debra Spinelli of the Las Vegas law firm Brownstein Hyatt Farber Schreck; and by Jerry Marks and Daniel Perry of the Los Angeles firm Milbank, Tweed, Hadley & McCloy.

Steve Green can be reached at 990-7714 or [email protected].

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