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Friday, July 9, 2010 | 12:15 p.m.
Sun Archives
- New objections filed in Station Casinos bankruptcy case (7-2-2010)
- Station Casinos, Herbst Gaming fight bondholders in bankruptcy cases (6-17-2010)
- Station Casinos bondholders seek delay in auction process (6-9-2010)
- Judge OKs Station Casinos’ plan to sell 11 casinos (5-28-2010)
- Judge deals blow to Culinary Union effort in Station Casinos bankruptcy case (5-27-2010)
- New objections filed to Station Casinos bankruptcy plan (5-25-2010)
- Station Casinos loses $53.5 million in first quarter (5-17-2010)
- Station Casinos: No competitive advantage under bankruptcy plan (4-29-2010)
- Station Casinos: Boyd Gaming meddling in bankruptcy case (4-28-2010)
- 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)
Bondholders in the Station Casinos Inc. bankruptcy case have renewed their request that they be allowed to sue Station insiders over the 2007 deal that took the Las Vegas company private, saying developments in high-profile bankruptcy cases around the country have reinforced their legal arguments.
The bondholders, owed $2.5 billion, are likely to see their investments wiped out under Station's reorganization plan in which Station insiders and their lenders would maintain control of five hotel-casinos now valued at $1.8 billion while 11 more gaming properties would be auctioned off.
As the stalking horse bidder, the Station insiders and lenders are seeking to maintain control of those 11 properties as well with a stalking horse bid of $772 million.
These proposed transactions value the company at about $2.572 billion. Because of the recession, that's down sharply from the $8.8 billion valuation when Station was taken private in 2007, a number that included $3.4 billion in debt that was assumed or repaid.
Station maintains it was the deep recession, not the going-private transaction, that left it unable to meet debt obligations and pushed it into bankruptcy last year.
But the bondholders' attorneys on Thursday filed a proposed complaint in U.S. Bankruptcy Court for Nevada charging: "The leveraged buyout (LBO) transaction caused Station Casinos Inc.'s insolvency and left Station Casinos with unreasonably small capital, ultimately driving the company to bankruptcy, to the detriment of Station Casinos' many unsecured creditors and employees."
"The LBO transaction consisted of a complicated web of contracts and transfers of property ... to accomplish a massive payout to the improper benefit of the defendants," the proposed complaint says. "The defendants relied on many risky and untested financial structures in crafting the LBO transaction."
The proposed defendants include Station's lead secured lenders Deutsche Bank and JP Morgan Chase Bank, Station subsidiary FCP PropCo and current and former Station officers and directors Frank Fertitta III, Lorenzo Fertitta, Glenn Christenson, Richard Haskins, Scott Nielson, William Warner, Thomas Friel, Dr. James Nave, Blake Sartini and Delise Sartini.
The bondholders say the $90 per share buyout, in which Los Angeles investment company Colony Capital LLC gained control of Station, resulted in $4.2 billion being paid to former shareholders.
Their proposed complaint challenges a provision in the deal in which secured lenders Deutsche Bank and JP Morgan Chase provided a mortgage against four of Station's most valuable properties and other financing totaling $2.4 billion. Those four properties were spun off into a separate company and then leased by Station Casinos.
This "master lease" provision was arranged so Station could tap into the collateralized mortgage-backed securities market to provide a source of secured financing for Station Casinos "where traditional debt financing would have been in breach of Station's pre-existing debt covenants," the proposed complaint says.
"The design and implementation of the master lease transaction was done with the actual intent to hinder or delay payments to unsecured creditors and, in the case of the bank defendants, provided the bank defendants an unfair advantage over general unsecured creditors," the bondholders allege.
The proposed complaint says that while Colony obtained about a 75 percent ownership stake in Station, it obtained only 33 percent of the voting stock of the company. "Such an anomaly ... was intentional so as to hinder or delay payments that could otherwise be due to certain noteholders," the proposed complaint says.
The bondholders complained the deal was engineered even as Station's business had been declining since the second half of 2006 because of the economic slowdown, and that it encumbered the company with some $1.6 billion in additional debt.
"Various insiders clearly understood that the assumptions underlying Station Casinos' management's projections were way off, but, because of their personal monetary interest in seeing the LBO transaction successfully closed (with all the risks on the backs of unsecured creditors), they ignored all the warning signs," the proposed complaint says.
The bondholders complained individual insiders received hundreds of millions of dollars from the IPO thanks largely to stock options granted them prior to the buyout, while the bank defendants "profited handsomely by receiving tens of millions of dollars in fees" and obtaining liens on the four casino properties.
Their proposed suit seeks to recover in behalf of creditors alleged "fraudulent transfers" in the form of allegedly excessive cash paid to the insiders for their stock because of the buyout and allegedly excessive bank fees. The bondholders also want the master lease deal canceled so all creditors can benefit from the value of the four Las Vegas-area hotel-casinos it encumbers: Red Rock Resort, Sunset Station, Boulder Station and Palace Station.
Bankruptcy Judge Gregg Zive has yet to rule on the bondholders' request that they be allowed to sue over the LBO. He earlier this year rejected a similar request in the Herbst Gaming bankruptcy case. Like Station's attorneys, Herbst attorneys argued it was the recession rather than untimely acquisitions by Herbst Gaming during the economic boom that drove Herbst into bankruptcy.
But in Thursday's filing, Station's bondholders cited several other cases where unsecured creditors have made progress in recovering some of their investments. Like the Station case, these cases involved leveraged buyouts engineered during the economic boom.
They cited a case involving Mervyn's in which a judge found that "selling shareholders can be liable on a constructive fraudulent transfer theory" and other cases involving publishing and broadcasting giant Tribune Co. and lodging company Extended Stay Inc.
"In such cases, courts have either granted ... standing (to sue) to creditors' committees or appointed examiners to undertake in-depth investigations with respect to transactions that occurred in late 2006 or in 2007," the bondholders' filing said.
"The (bondholders) committee submits that there is a consistent pattern of courts permitting creditors' committees or court-appointed examiners to take hard looks at highly-leveraged transactions that occurred in the same time frame as the November 2007 LBO transaction that the committee is seeking to challenge here," the bondholders' filing said.
Station attorneys haven't yet responded to the latest filing by the bondholders, but they did file a response Thursday to related complaints about the disclosure statement to the company's reorganization plan.
Independent lenders, who in the past have said they are owed $244 million, last week complained that under the plan, Station insiders and others have arranged releases for themselves -- without adequate explanation -- so they can't be sued by the bankruptcy estate for actions that may have caused the bankruptcy.
The independent lenders have complained their loans are at risk because of the going-private deal and other actions including Station's repeated refusal to entertain a buyout offer from competitor Boyd Gaming Corp. of Las Vegas.
Wilmington Trust Co., trustee for holders of $1.4 billion in Station bonds, also complained the disclosure statement does not contain adequate information to permit creditors to make an informed decision about the plan.
Attorneys for Station, in their response Thursday, said they'll be filing a revised disclosure statement soon reflecting modifications and additional information in response to inquiries and feedback on the statement.
In some instances, Station's filing said, "the Independent Lenders' complaints are nothing more than what has become the Independent Lenders' recurring theme of trying to disrupt a reorganization process in which they refuse to participate in any constructive way."
The Station attorneys noted the issue of whether insiders should be sued has already been addressed by the company's Special Litigation Committee, which found the recession, not the going-private deal, caused the bankruptcy. The Station attorneys also argued the disclosure statement doesn't need to examine this issue in depth as it's already been argued repeatedly by the bondholders.
"The Independent Lenders cannot credibly argue that any additional disclosure that might be included in the disclosure statement with respect to those matters will have any bearing whatsoever on their decision to accept or reject the plan," Station's filing said.
Station attorneys noted the company in November 2008 and in February 2009 tried to avoid the current controversies with debt-exchange deals that would have resulted in a consensual prepackaged bankruptcy filing. Station and the various creditor groups couldn't come to agreement on a consensual reorganization, which has resulted in the current highly contentious situation.
Station has also noted that, despite the complaints of the Independent Lenders and the bondholders, its reorganization plans are supported by holders of a majority of the secured debt against its OpCo and PropCo subsidiaries that own the 16 casinos to be auctioned or transferred.
Station and its partner in two more hotel-casinos, Aliante Station and Green Valley Ranch, are trying to restructure their debt outside of the bankruptcy process. Station's partner in those properties is an affiliate of the Greenspun family, owner of the Las Vegas Sun.
Good luck with that. Mob money VS bondholders. Mob always wins.
If the judge grants the unsecured bond holders the right to sue then the Tax Paying Citizens of the United States should have the right to sue all home owners that over mortgaged their homes and walked away from their obligations.
It is the same thing that is happening here. Stations owners over mortgaged based on the economics of the times. The bubble burst and they where left with debt the company could not afford to pay.
Seems there are a few million home owners in the same boat.
Just because the Stations Owners played with bigger dollars does not mean they had a better crystal ball then the rest of you.
The unsecured bond holders must have thought the same thing at the time of the deal. They where after the big bucks also. You win some, you lose some. That is what gambling is all about.
That maybe what gambling is about but not when you are playing against a stacked deck. Stations had planned most likely on filing bankruptcy from the first day.
There is a big difference in what insiders at Stations have done and what homeowners are going thru vegaslee. Did homeowners take out massive loans, putting that money into separate protected accounts and then declare economic shortfalls for reasons of default? Homeowners are basically broke. Insiders in the Stations deal are coming out smelling like roses with increased wealth and control from the scam known as 'the buyout.'
This is a travesty in the highest degree. The insiders are getting away with murder. You can be sure that the judge and state officials involved are owned by these "insiders" as well..
The Fertittas and the former Station Casinos have played this masterfully. Unless there is a big surprise when the sale of the OpCo properties commences, the new Fertitta Gaming company is going to retain management interest in all of the properties the former Station Casino company once held.
I think what is difficult for those of us who are simple laymen to swallow is, how, exactly, company insiders privatized and made hefty sums of money in this transaction, yet still manage to retain control of the company.
Boyd Gaming, a company with an active credit facility and is not overly levereged, made a succinct offer for all Station's properties. Seems strange that Station was allowed to dismiss this offer without consideration from the bankruptcy court.
Here's hoping Boyd will at least gain the OpCo "garbage" properties. One can only hope Station can't have their cake and eat it too.
There is no legimate reason for Station's management to take the company private. The real answer is greed. Deutsche Bank is equally responsible in crafting this massive debt structure. What is the reason to take a gaming (casino) company private and leveraging beyond the capacity to the debt? Greed and collusion to defraud? Casinos are service driven. The casino make nothing and produce nothing. Profits are gained from winning gaming wagers, an unpredictable outcoming.
Let me see if I get this RIGHT, you take Bond holdes money, then go brankrupt and say they dont get no money back, then you want to re-issue more bonds to new people, but still not pay the first ones off, WOW what a great court action we have , GOD BLESS AMERICA
Has anyone been into a stations casino lately? They are falling apart. I went into sunset station for the first time in years and it looks bad. Hardly any staff, dirty walls, carpets, bad. I guess their attitude is to build it, milk it, watch it deteriorate and sue. By the way, the coffee shop had 1 person working the whole thing, she was the hostess, waitress and bus person and the food stunk. BOYCOTT stations as they have tanked their operations and have no loyalty to their staff.
As I have said the only people making money are the attorneys. This has been going on for 2-3 years and should have been resolved. Stations should be sold but not to Boyd. Have u been to Boys Casino? I have and it'd not a pleasant experience. The Slots are tight low paying BJ and restaurants with indifferent staff and food. The bad things are the Fertitas are not losing any money. If u read the buyer of Texas Station has to pay a 75M premium for the land besides the purchase price.
"Did homeowners take out massive loans, putting that money into separate protected accounts and then declare economic shortfalls for reasons of default?"
jaquekeno,
Yes, many did. Many refied their house to the max, bought boats, fancy cars, big screen T.v.'s and anything else they could spend it on and then could not pay the mortgage. It is the same thing. Many also sold their house, took out huge profits and bought another house for $100,000's more that they could not afford.
It is the same thing. You just don't want to blame the American people for doing what businesses also did. You feel the need to hold some to higher standards because they live better then you do.
vegaslee, they are not living better than me. I realized economic reality and paid off my mortgage, cars and credit card debt. Noone owns me and I can tell Corporate America to kiss my asp anytime I want.
ConcernedNative must be a confused native, because not only is Sunset Station decently upkept, but they don't have a coffee shop.
As was discussed in the U.S. Trustee's objection to the content of the Black Gaming Chapter 11 Plan, and as is discussed in the Objection of the Independent Lenders to the Debtors Disclosure Statement in the Stations Casinos case (Docket #1710) a fair reading of the case law in the 9th Circuit (which includes Nevada) is that a Chapter 11 Plan cannot be used to release unpaid creditors claims against third parties who are not parties to the bankruptcy case, e.g. the Debtors' senior officers, directors, owners of substantial shareholders, etc. for payments of unlawful dividends, fraudulent transfers, preferential transfers, and the like to those potential defendants.
In Woodside Homes Chapter 11 (So. Dist. Cal.) the creditors of Woodside were allowed pursue those sorts of claims against Woodside's former shareholders.
What one typically sees in these Chapter 11 Plans drafted by sophisticated law firms representing those "controlling" a debtor are (1) a release of everyone associated with the debtors from any claims by anyone in the universe for anything having to do with the bankrupt companies and (2) an injunction against anyone in the universe suing those released for anything even remotely associated with the debtor company.
The presence of such a release/injunction in the Station Casinos Chapter 11 Plan will be a matter of controversy until the end of time, unless Judge Zive makes a decision, now, to allow such a lawsuit to go forward.
If you want to see the proposed lawsuit in the Stations case, which this sort of release/injunction would prohibit go to: http://www.kccllc.net/stationcasinos click on the Court Documents tab on the left, and then go to Documents #747 and 1734.
If you want to see a similar lawsuit in another big Delaware bankruptcy go to: http://www.kccllc.net/landsource click on the Court Documents tab on the left, and then go to Document 2919. In the case of that complaint, it is worth noting that "the other half" of the potential defendants were not sued, because of such a release/injunction provision in that debtor's Chapter 11 Plan.
The unsecured creditors are procedurally correct in asking, once again, for the right to bring their lawsuit before the Chapter 11 Plan is approved by the court, so that any release/injunction simply would not be an issue as to those claims.
It will be very interesting to see if Judge Zive has the chutzpah to allow Stations' unsecured creditors to sue the people named as potential defendants, above. If he does not, that decision will obviously lead to a less-than-perfunctory appeal which will flow from any bankruptcy court approval of the Chapter 11 Plan with such a release/injunction in it.
Fair bankruptcy judges substantially cut back on WHO has the protection of such a release/injunction. So again, the issue raised in the proposed lawsuit described in Steve Green's article is, in reality, the biggest issue pertaining to the Stations Chapter 11 Plan.
The fact that the officers and many special shareholders were enriched by Stations going private is the key. Taking Station Casions private did nothing for the company.
If you look at the stock transactions being done by Station Execs in the 2 years before they went private, you'll see the stock value manipulation that went on that drove the price up. Risky business!