Judge in Station Casinos case refuses creditors’ request

By Cy Ryan (contact)

Friday, Nov. 20, 2009 | 3:47 p.m.

RENO – A federal bankruptcy judge has refused, for the time being, a request by the unsecured creditors of Station Casinos to hire another firm to aid in seeing whether there was any fraud or unsavory dealings in the handling of its finances.

U.S. Bankruptcy Judge Gregg Zive on Friday told Los Angeles Attorney Eric Winston representing the creditors: “You don’t need that person, because you already have a qualified person.” But Zive’s denial was without prejudice, allowing Winston to bring the request later.

The unsecured creditors have a firm named Moelis & Co. examining the finances involving the bankruptcy filing by Station. But they also wanted to hire Sierra Consulting Group LLC to assist in their investigation of the 2007 deal in which the Las Vegas company was taken private for $5.7 billion.

Thomas Kreller, attorney for the debtor that includes Deutsche Bank as a key lender, called the hiring of a second firm “a complete redundancy'' without justification. He said it would “run up a lot of fees at the expense of the estate.”

He argued that Moelis could perform the same work.

Winston said the investigation may lead to litigation and the unsecured creditors need an expert to testify.

Sidney Austin, a lawyer representing PropCo, which is part of Station, said this would result in the two firms doing the same thing. Four of Station’s most profitable casinos were spun off to PropCo and were encumbered by $2.5 billion in debt. Station now pays PropCo $250 million a year to lease those properties.

The judge said hiring another firm could create disagreement in the same group of creditors. He said he was not questioning the qualifications of Sierra, and Winston could re-file his motion at a later time.

The hearing attracted more than 20 attorneys in the courtroom.

The judge also set hearings for Dec. 7 and 11 to hear arguments on extending the leases in which Station rents the PropCo properties. Station filed a court document Thursday saying that it, Deutsche Bank and other lenders have agreed to reduce the rent on the four properties by about $7.7 million a month.

The judge said he has not had a chance to look at the latest deal and whether to extend the leases on the other properties. Objections to the lease change are due by Dec. 1.

At one point, Zive noted Station has a lease on a hanger, but no airplane.

Also Friday, a group of independent lenders dropped their request that an examiner be appointed to study Station's finances. A deal was struck giving them more say in the process.

And Zive extended until Dec. 11 Station's exclusive period to file a reorganization plan. Station is expected to seek a further extension when the issue comes up for a hearing that day.

Station Casinos operate 18 properties in Las Vegas, Henderson and North Las Vegas and manages an Indian casino near Sacramento, Calif.

With the slowdown in the casino business in Nevada, Station Casinos filed a Chapter 11 bankruptcy petition in July.

The creditors are looking into the 2007 deal in which Colony Capital of Los Angeles and the Fertitta family purchased the company, complaining the transaction may have diverted some money from certain creditors.

Zive said the “underlying premise of this case is there be some kind of a sale.”

A spokesman for Boyd Gaming Corp., which is interested in buying all or part of Station, said it's a creditor in the case, having obtained some $2 million in Station bonds.

Kreller said if Station receives a sales offer, it wants to relay it to shareholders and lenders, but wants to keep it confidential from the public. But he also noted Station and Boyd are required to file periodic public reports.

CORRECTION: The spelling of Thomas Kreller's name has been corrected. The Sun regrets the error. | (November 21, 2009)