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October 1, 2014

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Fertittas seek to block creditors’ lawsuit in Station bankruptcy case

Unsecured creditors want to pursue claims in leveraged buyout of Station Casinos

Attorneys for two members of Las Vegas’ Fertitta family moved Tuesday to block a threatened creditors’ lawsuit in the Station Casinos Inc. bankruptcy case.

Attorneys for Station Chairman and Chief Executive Frank Fertitta III and his brother, Station shareholder Lorenzo Fertitta, filed court papers opposing a request by Station’s Official Committee of Unsecured Creditors that the committee be allowed to prosecute fraudulent transfer and other claims.

The committee is asking Bankruptcy Judge Gregg Zive in Reno for permission to pursue those claims against the Fertittas and their partner in the 2007 leveraged buyout of Station, Los Angeles investment company Colony Capital LLC. A Jan. 25 hearing is set on the request.

The unsecured creditors committee, which represents creditors including bondholders owed $2.3 billion, last month said 2007’s $8.8 billion buyout saddled the company with excessive debt, dooming the company to failure while enriching the Fertittas, insiders and merger bankers with hundreds of millions of dollars in payments for stock and buyout fees.

The creditors, with their claims of fraudulent transfers and breach of fiduciary duty, hope to recover the funds at issue from the Fertittas, Colony Capital and banks involved in the buyout.

But attorneys for the Fertittas, in Tuesday’s court filing, asserted it was ridiculous to claim the Fertitta family would retain an ownership stake of

$870 million in Station if the Fertittas believed the buyout would render Station insolvent and wipe out the value of their investment.

“Rather than cashing out all of their shares, the Fertittas retained the vast majority of their financial stake in Station,” the attorneys wrote. “It defies common sense to suggest that the Fertittas would orchestrate the LBO in order to defraud the bondholders when they and their family stood to lose nearly a billion dollars before the bondholders lost a cent.”

“And why would they risk their reputations by continuing to serve as executives of Station following the LBO?” attorneys for the brothers wrote, adding the LBO details were aired publicly in Securities and Exchange Commission filings and hearings before the Nevada Gaming Commission.

The Fertitta attorneys added that while the bondholders have downplayed the $2.7 billion cash investment of Colony Capital in the deal, the Colony investment showed Colony “clearly believed that Station had significant growth prospects or it would never had committed billions of dollars of its own funds into the company.”

Station has insisted the economy, and not the terms of the buyout deal, led to last year’s bankruptcy of the Las Vegas locals gaming leader.

In their filing Tuesday, attorneys for the Fertittas repeated that point, saying that in 2007 the Fertittas had noticed a slowdown in economic growth but expected that situation to be temporary.

“Like so many others at the time, they sincerely (and reasonably) expected that the economy would improve the following year, not foreseeing that the modest slowdown in 2007 augured the financial calamity that befell the country in late 2008 — a catastrophe that marked the true turning point in Station’s fortunes and its descent into bankruptcy,” the court filing said.

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