Lenders with mortgage want to give Station more time to plan reorganization

Thursday, Nov. 12, 2009 | 2:05 a.m.

Station Casinos properties

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Headlines from the Vegas gaming industry

Creditors press for independent examiner in Station bankruptcy (11-11-2009)
Boyd advances effort to acquire Station Casinos assets (11-1-2009)
Boyd Gaming sees profit fall as locals market takes hit (10-27-2009)
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Judge grants request of Station Casinos creditors to probe 2007 deal (9-30-2009)
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Study: Move to take Station Casinos private was fair (9-23-2009)
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Lenders want study on Station's rejection of Boyd, other issues (9-2-2009)
Judge delays key part in Station bankruptcy case (9-1-2009)
Creditors probe deal that took Station private (8-27-2009)
Station’s legal battle heats up in bankruptcy case (8-24-2009)

Additional Station Casinos Inc. lenders have weighed in on the Las Vegas company's request that it be allowed an extra four months to exclusively propose a plan of reorganization.

In U.S. Bankruptcy Court filings Tuesday, lenders holding a mortgage against four of the company's most valuable properties said they are fine with the extension, as long as Station doesn't try to cancel a lease covering those four properties.

When Station was taken private in 2007, a company called PropCo was created to own Red Rock Resort, Sunset Station, Boulder Station and Palace Station.

Station now pays itself — technically it pays PropCo — $250 million per year to lease those properties.

The rental payments under the master lease cover payments on the $2.475 billion in debt against the four hotel-casinos. The debt is called CMBS, meaning commercial mortgage-backed securities.

Creditors not involved in the mortgage say this deal should be changed because the recession has reduced the value of the four hotel-casino properties. They say the rental payments are excessive and are diverting cash that all creditors have claims against.

"As a general matter, the CMBS lenders support the debtors' request for extension of exclusivity, so long as the debtors perform their obligations under the master lease during the extension period," said a filing by key CMBS lenders German American Capital Corp., a Deutsche Bank subsidiary, and JP Morgan Chase.

The lenders agreed with Station that the extension of the exclusivity period is warranted given the complexity of the case and said the Station debtors and the mortgage lenders have worked diligently to craft a consensual reorganization plan.

"The debtors have done a good job so far in conducting this case" and have worked constructively with the mortgage lenders to share information, the lenders said.

The mortgage lenders, however, said they are worried about assertions by Station that Station is in a good position to craft a reorganization plan given the competing interests of different sets of lenders under its complex corporate structure.

"To suggest, as the debtors do, that they seek to 'balance the interests' of the stakeholders of different debtor entities necessarily implies a willingness to compromise the rights of one debtor estate for the benefit of a different estate. This is not an argument in favor of continued exclusivity," the lenders said in their filing.

The lenders added they have been active in proposing terms and offering "substantial financial concessions" that would keep the four PropCo casinos under the Station Casinos umbrella.

The four properties are responsible for the bulk — 67 percent — of Station's earnings before interest, taxes, depreciation and amortization, the lenders said.

Station's motion for an extension of the exclusivity period, along with other issues, is set to be heard during a hearing Nov. 20.

Discussion: 8 comments so far…

By BorisR

11/12/09 at 9:51 a.m.

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Why delaying? Station Casinos is technically bankrupt. 4 additional months do not change this fact. Boyd Gaming is waiting with a money injection and Station should accept its offer. Everybody would be happy, including the stockholders. And Vegas. And me.
By American_Gaming_Guru

11/12/09 at 10:09 a.m.

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Bring on BOYD already!
By tvegas

11/12/09 at 12:18 p.m.

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Boycott Stations until Boyd buys them.
By mrability

11/12/09 at 2:53 p.m.

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how much more time ,does this failed company need?How much money are they throwing away?
By CynicalObserver

11/12/09 at 3:01 p.m.

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Here's why Deutsche Bank doesn't want Boyd to buy the "stock" in the owner of all of the Station subsidiaries which actually own and operate Stations casinos:

Deutsche Bank and certain lender partners have mortgages on Boulder, Sunset, Redrock and Palace Stations. The mortgage balances are far greater than fair market value of the 4 casino properties. Boyd would want to buy at the "real" market price, and Deutsche doesn't want the properties sold for that price, because they and their co-lenders wouldn't get payment in full.

Deutsche Bank and certain OTHER lender partners, including so-called Independent Lenders (who are angry with Deutsche and Stations) ALSO are lenders on a massive loan, secured by the stock in the Stations operating company which in turn owns all of the casinos. If Boyd were to buy that stock, and gain control of Stations, Boyd would want to pay "fair market value", so Deutsche and its partners would not get paid in full. Deutsche doesn't want that to happen either, for the reason in the next paragraph.

The biggest reason Deutsche Bank doesn't want Boyd to purchase the operating company of Station Casinos, through a bankruptcy sale, is that Deutsche's offshore branch sold partnership interests to "European" customers. Those lender partnerships own additional loans to Stations Casinos entities. In a sale of the casino parent company to Boyd, through bankruptcy, those European customers of Deutsche would get nothing in return for their loans. Such a loss would seriously harm Deutsche's reputation as an investment bank offering safe investments to investors outside the USA. It could prove to be disastrous for Deutsche's future attempts to sell investments to European customers. As a result, Deutsche's overall goal is to structure a Chapter 11 Plan which would give these European customers something substantial for the money they invested.

As a result, to save its own reputation, Deutsche Bank is likely to move heaven and earth to prevent the sale of Station Casinos to Boyd. Deutsche wants a Chapter 11 Plan in which the buyers of all three types of loans sold by Deutsche, and secured by Station Casinos and its assets, will have an ownership stake in the end.

Stations current ownership is likely to be the manager of the casinos under such a Deutsche Bank sponsored Chapter 11 Plan, even though they won't own the company or buildings. That's what happened to Herbst family under their Chapter 11 Plan.

If Boyd really wants these casinos, he needs to figure out a way to cut a deal with Deutsche, shoving aside the Fertittas as the managers of the casinos for Deutsche and its partners as future owners of Stations.

Boyd has some very good bankruptcy lawyers, so it will be interesting to see if they have the skill and the cash to out maneuver the Colony Capital/Fertittas' lawyers, to get the job done.
By BorisR

11/13/09 at 4:43 a.m.

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Wow, that's a lot of info about the situation, observer.
I think that Deutsche Bank took quite a gamble in the Las Vegas market. Not only the Station investments seem to be a big loser, but also the FountainBleu gamble seemed to have put a big hole into the profit/loss calculation of the bank.

Hasn't Station casinos also bought the rights on the Castaways project in order to prevent additional competition on the Boulder Strip? Nevertheless they could only protect themselves against competitors on the Northern End of Boulder Highway while further South East the East Side Cannery and Sam's Town are quite busy and raking in the customers.

Station Casinos tried to take over complete control over the Las Vegas market. I doubt that they can keep up control. Boyd will be the No 1 sooner or later.
By kenodave

11/13/09 at 2:40 p.m.

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I just wonder, cynicalobserver, how you have acquired so much knowledge on the case? I haven't read many of your disclosures in the news. I don't doubt your knowledge. I am just wondering what are your connections on the case?
By Boxer47

11/13/09 at 5:05 p.m.

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"Station now pays itself -- technically it pays PropCo -- $250 million per year to lease those properties."

And how is this legal and acceptable? This sounds like the Derivative scam Michael Moore was raving against in Capitalism.