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Published Wednesday, April 28, 2010 | 10 a.m.
Updated Wednesday, April 28, 2010 | 3:25 p.m.
Related Documents (.pdf)
Sun Archives
- Boyd Gaming objects to Station Casinos reorganization plan (4-22-2010)
- Union-backed group critical of Station reorganization plan (4-21-2010)
- Creditors attack Station Casinos bankruptcy plan (4-21-2010)
- Key lenders agree to Station Casinos reorganization plan (4-19-2010)
- Station Casinos asks judge for extension in bankruptcy case (4-8-2010)
- Station Casinos reports revenue drop in fourth quarter (3-31-2010)
- Station Casinos reorganization plan: Sell several properties (2-25-2010)
- Station Casinos reaches deal with key lenders, hopes to emerge from bankruptcy (2-25-2010)
- Bankruptcy judge urges Station Casinos, creditors to negotiate (1-25-2010)
- Fertittas seek to block creditors’ lawsuit in Station bankruptcy case (1-12-2010)
- Station Casinos bondholders want permission to sue (12-29-2009)
- Culinary Union sides with Station Casino’s creditors (11-23-2009)
- Culinary Union statement critical of Station Casinos (11-19-2009)
- Creditors want to expand probe of Station Casinos deal (11-19-2009)
Station Casinos Inc. and competitor Boyd Gaming Corp. traded charges against each other this week in Station's bankruptcy case as Station presses forward with a plan in which the company's existing owners would hold an ownership stake and continue to manage the Las Vegas locals casino company.
Under plans set to be aired in Bankruptcy Court in Reno on May 4 and May 5, the founding Fertitta family and co-owner investment house Colony Capital of Los Angeles have agreed to allow lenders to foreclose on four major Station properties collectively called "PropCo": Red Rock Resort, Sunset Station, Boulder Station and Palace Station.
These four properties, along with the Wild Wild West motel and casino and land holdings on South Las Vegas Boulevard, would be spun off into a company in which the Fertittas and Colony would hold a 50 percent ownership stake. Frank Fertitta III, chairman and chief executive of Station, and his brother Lorenzo, a Station director, have formed a company that would manage these properties. This company, to be encumbered by a $1.6 billion mortgage, would be valued at about $1.8 billion.
The Fertittas, Colony and the PropCo lenders also plan to bid during a bankruptcy auction on Station's interest in 13 additional "OpCo" properties as well as extensive land holdings in Nevada and California and Indian gaming contracts. They've proposed to be the "stalking horse" bidder with a bid of $772 million for OpCo, which includes Station interests in joint ventures with the Greenspun family, owner of the Las Vegas Sun.
In court papers filed Monday, attorneys for Station charged that Boyd has been meddling in the case -- claiming to be a creditor but actually acting as a potential buyer for Station. Station specifically objected to Boyd's insistence that its representative attend depositions in advance of the key reorganization hearing set to begin May 4.
"Boyd had sought to act as the stalking horse bidder in the auction ... but was not successful in negotiating for that position," Station's filing said. "As a result, Boyd’s true status is that of a disappointed bidder for the stalking horse position and a potential competing bidder in the ultimate auction.
"Equally important, Boyd is the debtors’ primary competitor, which means that regardless of the outcome of the auction process, Boyd has every incentive to try to disrupt the debtors’ efforts to preserve and maintain their business operations in a manner consistent with the debtors’ place at the top of the locals gaming market. Thus, Boyd’s posturing has nothing to do with its holdings of insignificant amounts of out-of-the-money bonds and everything to do with Boyd’s effort to try to gain access to debtor’s confidential documents and to attend the depositions in order to disrupt the bankruptcy process and the debtors’ business and obtain sensitive competitive information that it would then use to the detriment of the debtors’ estates.
"Boyd clearly views this as a 'free shot' to harm Station Casinos and gain a competitive advantage; such an agenda is not an appropriate use of creditor standing in these cases and should not be permitted," the Station attorneys charged, adding Boyd has failed to turn over documents related to the case sought by Station and Boyd violated a non-disclosure agreement by working directly with OpCo lenders on competing restructuring proposals.
"From the outset of these proceedings, Boyd has sought to delay, hinder, and obstruct the debtors’ reorganization, obtain access to Station Casinos’ valuable trade secrets, and harass Station Casinos' management. Simply put, Boyd has acted strategically to hurt Station Casino’s reorganization in order to further its own competitive interests. And, if at all possible, Boyd would like to poison the well for other potential bidders for OpCo, so that Boyd can obtain the OpCo assets at fire-sale prices," Station charged in its filing.
But attorneys for Boyd, in denying allegations the company breached the non-disclosure agreement, said: "Boyd Gaming is a party whose involvement in these Chapter 11 cases as both a creditor and bidder already has brought substantial benefit to the debtors' estates, including by increasing the stalking horse bid."
Boyd attorneys also complained that Station attorneys have been making "vastly overbroad" discovery requests for Boyd documents.
"The majority of the debtors' document requests are directed to Boyd Gaming's development of its previous proposals to purchase the debtors' assets," Boyd argued. "Indeed, the debtors even have requested Boyd Gaming's competitive plans on competing with PropCo in the future.
"These topics -- what Boyd Gaming was willing to pay for the debtors' assets in the past, how it arrived at that decision and how Boyd Gaming will compete with PropCo in the future -- bear no relevance whatsoever" to current issues in the case -- amendments to the PropCo master lease between Station and lenders, Station's request that its exclusive period to file reorganizaztion plans be extended and the OpCo bidding procedures, Boyd's filing said.
"Rather, such demands only are designed in an attempt to gain insight into the amount that Boyd Gaming may be willing to bid in the future for the debtors' assets in an auction process in which Boyd Gaming will be bidding against the debtors' insiders," Boyd attorneys said.
Nevertheless, Boyd this week withdrew its objections to Station's proposed bidding procedures for the OpCo properties, Station's proposed PropCo lease amendments and Station's request that its period to exclusively file a plan of reorganization be extended.
Boyd attorneys didn't say in court papers why the objections were withdrawn, but spokesman Rob Meyne earlier this week noted certain Station lenders and its unsecured creditors had filed similar objections.
"We respect the fact that the court has a limited amount of time to consider a wide range of matters, and it has become clear, based on the responsive papers filed by Station, that Station is determined to use a portion of that limited time to attack Boyd Gaming, rather than address the important issues at hand," Meyne said.
"We remain very interested in acquiring Station’s assets and continue to believe we are able to offer the maximum value to Station’s creditors," Meyne said Monday.
The Boyd objections were withdrawn after Bankruptcy Judge Gregg Zive on Monday told attorneys for Boyd that Boyd was not entitled to discovery on the contested issues; and attorneys for Station told the judge that as long as Boyd was objecting to its plans, Station would continue to seek discovery from Boyd.
On Monday, Boyd announced plans to drop the objections related to the lease amendment and the exclusivity period -- but to continue pressing its objection on the OpCo bidding issue.
But on Wednesday, Boyd without explanation dropped its objection to the proposed bidding procedures as well.
This is the way the free market should work, one company competes with another company to bring about a fair deal for all parties involved. Too bad the employees were not represented by a Union. Then we could see a really good fireworks display.
It is a good thing that Boyd may be "meddling" in this process! This whole BK has been nothing but one big self-deal to current Station Ownership and Management thus leaving a majority current debtors out to dry. Boyd has and continues to offer more of a recovery on investment than The Fertittas's and Colony are willing to offer. As jat3714 says, this is a free market system! Station should not be rewarded for vastly over leveraging and self contracting (land leases, property leases and management contracts) deals that have now gone bad. They are essentially positioning themselves to buy their own assets at drastically reduced pricing without the say of a great majority the debtors. Boyd is providing a competitive and more attractive recovery of investment.
The Fertittas ran the company into bankruptcy...why are they being given another chance?It's amazing how failure is rewarded. I don't get it.
Where does the Las Vegas Sun and the family come out in all this discharge of debts through bankruptcy? Are they not partners in all this fiasco?
Ferttita's are lucky they are not in jail.
Boyd would like to poison the well for other potential bidders for OpCo, so that Boyd can obtain the OpCo assets at fire-sale prices," Station charged in its filing.
Talk about calling the kettle black. Stations doesn't like the tactics they themselves are using to acquire the properties for rock bottom prices.
In case anyone cares, as long as Boyd really does own some of the unsecured debt of Station Casinos, Inc., under the Bankruptcy Code and U.S. Constitution, they really do have a right to participate in the process of criticizing the proposed sale under Section 363 of the Bankruptcy Code.
As to all of the Station Casinos, Inc. (Fertitta and Colony Capital) whining quoted from the bankruptcy court pleadings, that is simply standard junk filed by people in their position in the Chapter 11 case.
The real question will be whether Boyd really wants to buy all of the OpCo garbage which is being sold, in order to get the partnership interest in Green Valley Ranch and Aliante Station. If Boyd thinks the OpCo assets are overpriced at $772 Million, noting much will happen.
If Boyd thinks the OpCo assets are lowball priced at $772 Million, they can "over bid" at the hearing, offering to pay cash, and become the "stalking horse", just like Carl Icahn's group did with the Fontainebleau.
Even if Boyd doesn't want to bid up that $772 Million stalking horse price now, they can come in to the final auction of the OpCo properties under Section 363, and overbid the group put together by the Fertittas at that time, as long as Boyd pays cash.
This is standard bankruptcy court procedure, and the Fertitta/Colony Capital whining, in their court papers, is simply pro-forma stuff to protect the egos of the Fertitta/Colony executives involved.
Boyd should STAY AWAY from this white elephant! It's a loser, and it will take anyone down who gets involved.
@neiman1
The two partnerships which own Green Valley Ranch and Aliante are not in bankruptcy. The Greenspun entities which are the 1/2 partner in each deal are not in bankruptcy.
The Stations Casino entity which is the 1/2 partner in Green Valley Ranch is in bankruptcy. That same bankrupt entity is the manager of Green Valley Ranch. So that partnership interest and management contract are part of the "OpCo" assets being auctioned off.
The Colony/Fertitta entity which is the 1/2 partner in and manager of Aliante Station, is not in bankruptcy, but that partnership interest and management contract also are part of the "OpCo" assets being auctioned off.
If the judge is careful, all vendors to the actual entities which own Green Valley Ranch and Aliante Station should not get stiffed out of any money owed them as a result of this auction and related Chapter 11 Plan. So, in answer to you question, the Greenspuns do not "profit" from this whole Stations Casinos, Inc. mess. Instead they have the potential of being forced to be partners with some company they do not like (such as the Fertitta managed Deutsche Bank/Fertitta stalking horse bidder).
The big losers are people and companies who are unsecured creditors of the bankrupt entities. They will get nothing, regardless of whether Boyd, Deutsche/Fertitta or some third part is the successful bidder.
All of the "sale proceeds" (purchase price cash) from both the OpCo and the PropCo sales will go to the first lien secured lenders (aka mortgage lenders) on the real property and personal property (e.g. kitchen and restaurant equipment). Those "first lien lenders" are, in all cases, groups led by Deutsche Bank and its affiliates.
@ TomD1228
Unfortunately, this is how the Bankruptcy Code is set up, and how the cases decided under it work.
When a group of people like the Fertittas and Colony Capital put an entity into bankruptcy, unless someone successfully moves to get a Chapter 11 Trustee appointed (which didn't happen here) the case law requires the judge to defer to the "business judgment" of the managers of the debtors, in this case the Fertittas and Colony Capital.
As a result, thay's why they can control the manner in which the companies' assets are sold off.
Theoretically, under the Fertittas and Colony Capital plan the first lien lenders (all affiliated with Deutsche Bank) are for all practical purposes foreclosing on their collateral, putting ownership of the real estate and personal property into a new entity, and then re-selling a piece of ownership to the former managers, for cash which goes into those lenders' pockets.
While it may seem to you that it is immoral that the Fertittas can "buy back in" while the unsecured creditors get nothing, that is how the U.S. bankruptcy laws work.
Recently, there have been other "stiff everyone but the bad guy" Chapter 11 Plans approved by bankruptcy courts, so this situation is not unique. In one Delaware bankruptcy called "LandSource" Barclays Capital, the mortgage lender, effectively foreclosed, all of the unsecured creditors and junior mortgage lenders got stiffed, the California State Employees Pension Fund lost its $1 Billion equity investment in LandSource (which it had made less than 2 years earlier) and the old manager of LandSource, Lennar Corp., "bought back in" just like the Fertittas are doing.
If you find this bankruptcy scheme objectionable, talk to Harry Reid, John Ensign, Shelley Berkeley and Jim Gibbons who were in Congress when the most recent changes to the bankruptcy laws were made. Nothing was done to "prohibit" these sorts of deals which appear "stinky" to the average person.
fertitta's cashed out big time, and in doing so ran this into bankruptcy---now they are getting a 50% position in the cherry picked properties---you would think that this kind of thing could only happen in a crooked third world country--but hey--this is las vegas! And why would anyone want the fertittas or boyd's running anything--they stiff the customers and the emloyees alike while they siphon off every penny from every property while spending as little as posible on the properties. look at eldorado, jokers wild, california club, main street fremont--they have spent next to nothing on these properties for decades and to get a hamburger after playing you have to beg! Put these properties on the market to the highest bidder, each as stand alone and lets get some new owners in the mix!
The beauty of the process however is that a 363 requires the court to consider the highest and best offers made for the debtors' assets and estate.
If the Fertitta group values the 5 PropCo properties at 1.8 billion (with 200MM in equity and a 1.6 billion mortgage), and the OpCo properties at 773MM, altogether, the company is worth roughly what Boyd offered to buy it for last spring $2.4 billion all in.
Assuming Boyd is willing to make that bid in open court at the 363 auction and can qualify according to the bidding procedures the court sets, in theory, Boyd should walk away with all of Station's assets.
It sounds simple on paper, but the trick is getting 2.4 Billion to buy Station in this economy.
If anyone with that kind of coin had confidence in the long term health of the LV locals market, they would likely have already stepped in by now and snapped up Boyd or Station or both.
travisty - is all i have to say
IGRA requires that both the tribe and the NIGC have to approve any transfers of interest in a "Management Contract". Any buyer, even at the "fire sale" price of $722 Million buys only the "right" to deal with the tribes and is not guaranteed that the Tribe will approve and the NIGC will approve the transfer. Without these approvals you buy a "pig in a poke". I don't think that the OPCO properties can be sold either as a "package" or at auction. Buyers will have to deal directly with the Tribe and the NIGC or they may be purchasing "air". A Trustee should have been appointed in light of the complicated issues involved in the Indian properties.
CynicalObserver...thanks for all the feedback. Let me also point out that Trump seems to do the same thing with his casinos appx. every three years!