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Creditors attack Station Casinos bankruptcy plan

Updated Wednesday, April 21, 2010 | 3:08 p.m.

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Station Casinos Inc.'s bankruptcy reorganization plan is under attack, with unsecured creditors owed $2.5 billion charging it's part of a "scheme" by the founding Fertitta family to maintain control of the company "at as low a valuation as they can get away with.''

The Las Vegas locals casino company, unable to meet its debt obligations after the recession cut into its business, filed for Chapter 11 reorganization last summer.

In recent weeks, Station owners the Fertitta family of Las Vegas and Colony Capital of Los Angeles have proposed a two-step process in which they would take the company out of bankruptcy by keeping it together, maintaining an ownership stake and by continuing to manage its 18 gaming properties. Station said these plans are supported by holders of about 90 percent of its secured debt.

Under this two-step process:

-- Certain lenders would foreclose on four of Station's most important properties, called the PropCo properties. They are Red Rock Resort, Sunset Station, Boulder Station and Palace Station. The Fertittas and Colony Capital would pay $85.6 million for a 50 percent stake in a new company owning these properties -- which would be encumbered by a $1.6 billion mortgage -- as well as the Wild Wild West property and vacant land at Cactus Avenue and the southern end of Las Vegas Boulevard.

-- The PropCo lenders, the Fertittas and Colony Capital would act as the "stalking horse bidder" for Station's interest in the remaining 13 casino properties during a bankruptcy auction. These are called the OpCo properties. The stalking horse bid proposed by Fertitta, Colony and the lenders is $772 million for the properties, which include Santa Fe Station, Texas Station, the two Fiestas in the Las Vegas area and Indian gaming contracts. OpCo also includes joint-venture gaming properties with the Greenspun family, owner of the Las Vegas Sun.

Station, which unveiled the stalking horse proposal Monday, is seeking approval during a May 4 court hearing to proceed with these plans.

But two objections to hearing these plans on May 4 were filed Tuesday, with creditors not involved in the Fertitta/Colony plans saying they need more time to study and respond to the complex proposals.

"The OpCo Lender Motion is the latest component of an overall scheme to ensure that the Fertittas retain control of the Station enterprise, at as low a valuation as they can get away with," attorneys for the unsecured creditors said in their filing. "That plan provides no recoveries for general unsecured creditors of Station Casinos, seeks to compel releases of claims for the benefit of insiders and lenders in violation of 9th Circuit law, and impermissibly provides existing equity (holders) with the exclusive right to purchase 50 percent of the equity of the reorganized debtors at a discount from plan value.''

"The debtors firmly recognize that what they are trying to do is ... lock this court into the plan that favors insiders before the first vote is cast at the expense of creditors," wrote the attorneys for the unsecured creditors.

The unsecured creditors are owed more than $2.5 billion, including some $2.3 billion owed to bondholders.

Their attorneys wrote: "There is now a 'stalking horse' bidder for OpCo's assets, less the (PropCo) assets stripped away ... for the benefit of the Fertittas. That 'stalking horse' bidder, shockingly, is the same entity that seized the opportunity to acquire the equity in reorganized PropCo and enter into a lucrative management agreement for PropCo.''

The PropCo plan "is a deal between insiders requiring critical investigation and discovery," the unsecured creditors complained.

"In reality, the (PropCo plan) is intended to strip away valuable assets from Station Casinos that will be provided to the Fertittas and the PropCo lenders so that they can have an immediately viable, direct competitor of Station Casinos in the event that they do not also acquire Station Casino's stripped-down assets,"charged the unsecured creditors' attorneys with the law firms Greenberg Traurig LLP in Las Vegas and Fried, Frank, Harris, Shriver & Jacobson LLP in New York.

Attorneys for Boyd Gaming Corp. of Las Vegas, which has been attempting to buy Station, also filed papers Tuesday saying they planned to object to Station’s request that its exclusive period to propose a plan of reorganization be extended; and to Station’s bidding procedures for the OpCo assets.

Also, the case's Independent Lenders' group on Tuesday filed court papers opposing Station's plan that the restructuring agreements be heard on May 4.

"Allowing the Plan Motion to be heard on shortened notice will only make the process of resolving objections more difficult," the Independent Lenders said in their filing. "The Plan Motion is perhaps the most significant pleading filed in these cases so far; the creditors that are not party to these new agreements need sufficient time to review the Plan Motion and the hundreds of pages of related documents, conduct discovery, prepare pleadings, prepare for the hearing and attempt to negotiate any settlement.''

The Independent Lenders are BNP Paribas, Castlerigg Master Investments Ltd., Genesis CLO, Natixis, Silver Point Capital, the Bank of Nova Scotia and Union Bank, N.A.

Station Casinos has not yet responded to the objections and a spokeswoman on Wednesday said the company would have no immediate comment.

In announcing Monday's stalking horse bid, Station Chairman and Chief Executive Frank Fertitta III said: “We are pleased to have reached agreement with the steering committee of the OpCo senior lenders on the acceptance of our stalking-horse bid and our plan of reorganization. This agreement is another important step toward maximizing the value of all of the Station Casinos’ properties for the benefit of our team members, guests, lenders and the Las Vegas community.”

With Station's owners and creditors standing to lose billions of dollars in the case, the legal fighting is expected to heat up in coming weeks. Under the reorganization plans, Station insiders have valued the company at about $2.572 billion, while its debts and liabilities were last reported at $6.6 billion.

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