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September 30, 2014

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Bondholder drops lawsuit against Station Casinos

Suit was filed in February over prepackaged bankruptcy filing

Image

Justin M. Bowen

The Palace Station resort in Las Vegas.

A bondholder challenging Station Casinos Inc.'s plan for a prepackaged bankruptcy filing and debt exchange has dropped his lawsuit against the Las Vegas company, its board of directors and its key executives.

Bondholder S. Blake Murchison made headlines Feb. 13 when he sued Station, charging it was not being gentlemanly with a debt exchange offer in which bondholders were asked for steep concessions as part of a proposed prepackaged bankruptcy plan.

The suit included this line of philosophy from Leo Tolstoy: "A gentleman is a man who will pay his gambling debts even when he knows he has been cheated."

After lawyers for Murchison and Station traded legal briefs for months, with Station calling Murchison a gadfly plaintiff since he's also suing Harrah's Entertainment and General Motors Acceptance Corp., the suit was voluntarily dismissed May 5.

Murchison's lawyers dismissed the case without prejudice, meaning that if he desires, he could sue again over the same allegations.

Station Casinos spokeswoman Lori Nelson declined comment on the dismissal of the lawsuit and on the company's continued talks with bondholders.

The talks are aimed at reaching an agreement on a prepackaged bankruptcy in which the note holders would grant concessions while Station's owners, the Fertitta family and Colony Capital, would pump $244 million in capital into the company and remain in control of the gaming, hotel and entertainment operator.

One of Murchison's Las Vegas attorneys, G. Mark Albright, could not immediately be reached for comment on why the suit was dismissed. The notice of dismissal simply cites a lack of action in parts of the case: The defendants didn't file an answer or motion for summary judgment on Murchison's amended complaint, no trial date has been set and the court has not certified the case as a class action, Murchison's filing said.

Prior to the dismissal, Murchison and attorneys for Station, its directors and executives had been arguing over whether Murchison should post a minimal cash bond of $6,000 to pursue the case.

And an attorney for Station argued Murchison's complaints about the proposed reorganization and debt exchange were moot since the initial voting period in Station's official solicitation to bondholders announced Feb. 3 had expired on April 10.

The attorney for Station, Todd Bice of the law firm Brownstein Hyatt Farber Schreck LLP, said in an April 20 filing: "Recent developments render plaintiff's complaint moot. ... Station hereby informs the Court that the Solicitation Statement that is the subject of the First Amended Complaint expired on April 10, 2009, and the plan of reorganization that was described in the Solicitation Statement was not approved and will not be implemented. Because the Solicitation Statement expired and the plan was not approved, there is no live controversy and the case is now moot."

This was reiterated in a May 1 filing by Bice saying "Station’s Plan of Reorganization and the related Solicitation Statement expired and will no longer be pursued, thus rendering Plaintiff’s Complaint moot."

However, since the April 10 expiration of that solicitation, Station has obtained additional forbearances from key bondholders, has continued to negotiate with them and has extended the voting deadline again. The latest forbearance expires Friday.

Under the plan that bondholders have been asked to vote on, they would receive cash and notes worth 10 cents to 50 cents on the dollar, depending on the notes they hold. Murchison complained in his suit he was harmed by the plan because he and others in his class of bondholders were unable to vote on the proposal -- though Station argued all bondholders in each class would be treated the same regardless of whether they could vote.

"If the prepackaged bankruptcy case is approved and confirmed, Plaintiff will receive exactly the same consideration (i.e., new notes and cash) as every other holder of the class of notes currently held by Plaintiff. Contrary to Plaintiff's allegations, neither he nor any other note holder will be 'subordinated' or 'discriminated' against in any way," Station said in a March 16 court filing.

Under the plan, Station would exchange $2.3 billion in bonds with new, discounted notes with extended maturity dates, potentially reducing the company's debt by $1.7 billion. The deal would have reduced Station's annual interest expenses -- an important goal considering the recession has sharply reduced revenue and cash flow for the company.

Complicating the issue is Boyd Gaming Corp.'s offer to buy certain Station assets, a proposal Boyd remains interested in but that Station has rejected.

For the fourth quarter of 2008, Station reported a net loss of $3.2 billion compared with a loss of $437.4 million for the same period in 2007. Net revenue for the fourth quarter of 2008 fell 19 percent to $289.8 million.

For the 2008 fourth quarter, the company reported $3.39 billion in write-downs and other charges against earnings. That includes declines, on paper, in the value of Station assets -- with the declines tied to the recession.

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