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July 23, 2014

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Boyd Gaming objects to Station Casinos reorganization plan

Boyd Gaming Corp. and certain creditors filed new objections Wednesday to Station Casinos Inc.'s bankruptcy reorganization plan as legal wrangling intensified over the future of the company with 18 Southern Nevada gaming properties.

Station owners the Fertitta family of Las Vegas and investment company Colony Capital of Los Angeles have proposed that they maintain an ownership stake in the hotels and casinos through a complicated process in which lenders would foreclose on some of the properties and the Fertittas and Colony would bid for the others during a bankruptcy auction.

Attorneys for Boyd, which has been trying to buy Station, said in their objection that the Fertittas and Colony Capital have proposed an auction process that is rigged to favor the current owners.

Boyd complained specifically that the Fertittas and Colony are proposing that significant assets such as information technology systems, intellectual property and customer databases be transferred to a "PropCo" company that would control Red Rock Resort, Sunset Station, Boulder Station, Palace Station, the Wild Wild West and land at Cactus Avenue and Las Vegas Boulevard.

The PropCo properties would not be part of the proposed auction. Rather, they would be acquired by the Fertittas, Colony Capital and lenders under a process in which the lenders would foreclose on Red Rock and the Sunset, Boulder and Palace properties.

The assets to be transferred to PropCo are integral to the operation of the 13 OpCo gaming properties that are to be auctioned, Boyd said. The OpCo side of Station Casinos includes extensive land holdings, Indian gaming contracts and joint ventures with the Greenspun family, owner of the Las Vegas Sun.

"This would leave OpCo as a 'shell' of its former self," Boyd's filing said. "Interested bidders will not be bidding on a fully-operatonal OpCo, but on only a skeleton of OpCo that will require a potential acquirer to rebuild the OpCo infrastructure in order to allow OpCo to function properly."

Boyd said it can cost up to $20 million per property to development casino management systems and that transferring such OpCo systems to PropCo would result in a significant windfall to PropCo and chill bidding for the OpCo properties.

"By excluding OpCo assets of significant value, as well as the PropCo assets, from the proposed Station Casinos sale, the debtors are not allowing their assets to be shopped as their fiduciary duty requires," Boyd charged in court papers.

Boyd also noted that its offers to purchase Station assets in February and December 2009 were not accepted. The last offer for the entire company was for $2.45 billion.

"We now know that the debtors were only interested in pursuing an insider transaction at the expense of their creditors' interests in breach of the board's fiduciary obligations," Boyd's filing said. "The court should not sanction the debtors' ongoing blatant disregard for the creditors' interests by approving these one-sided bidding procedures."

Similar objections were filed Wednesday by the case's Official Committee of Unsecured Creditors, representing bondholders and others owed some $2.5 billion. The unsecured creditors charged that the Fertittas and Colony Capital have arranged to acquire a 50 percent interest in the PropCo properties at a 15 percent discount while arranging a lucrative 25-year management deal for those properties.

"These series of transactions are structured, using New PropCo and Fertitta Gaming, to camouflage the conflicts of interest and self dealing that are at the heart of the ... plan," attorneys for the unsecured creditors charged.

"The proposed restructuring is simply a deliberate campaign by those controlling Station Casinos to benefit themselves, its equity owners, at the expense of Station Casinos' creditor constituents," the creditors charged.

Another objection was filed by a group of independent lenders, which also complained that assets crucial to the operation of the OpCo casinos would not be included in the OpCo auction.

"From the perspective of the OpCo creditors, the process makes no sense: It's like selling KFC without the Colonel's secret recipe, or selling Coke without the formula, because the seller fails to capture the full value of the enterprise and the buyer acquires a business crippled without its competitive advantage," the lenders charged.

A May 4 hearing is planned in Bankruptcy Court in Reno on whether Station can proceed with its reorganization plans, and a spirited legal debate is likely because of the huge stakes involved.

Station's owners and creditors alike stand to lose billions of dollars as Station's proposals have valued the company at about $2.572 billion, while its debts and liabilities were last reported at $6.6 billion.

Station has not yet responded to the objections. Chairman and Chief Executive Frank Fertitta III this week said the reorganization plans, which are supported by holders of some 90 percent of the company's secured debt, are aimed at " maximizing the value of all of the Station Casinos’ properties for the benefit of our team members, guests, lenders and the Las Vegas community.”

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