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StumbleStation Casinos, Herbst Gaming fight bondholders in bankruptcy cases
Thursday, June 17, 2010 | 9:18 a.m.
Sun Archives
- 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)
Two Las Vegas casino companies are resisting efforts by bondholders to have action in their bankruptcy cases delayed while bondholders appeal adverse rulings.
Bankruptcy Judge Gregg Zive in Reno has scheduled hearings for Monday on motions by bond investors that an Aug. 6 auction of casinos and hotels be delayed in the Station Casinos Inc. case; and that the Herbst Gaming reorganization be put on hold.
In the larger Station Casinos case, attorneys for bondholders say their clients stand to lose $2.5 billion -- in part because of rulings by Zive in favor of a plan by Station insiders to proceed with an auction of 11 of the company's casinos and hotel-casinos.
In their appeal brief to U.S. District Court, the bondholders, who are unsecured creditors, say the bidding plan is "tainted by insider dealing" and was written in ways that discourage competitive bidding and doesn't fairly value some of the Station assets.
Under the plan approved by Zive, members of Station's founding Fertitta family and certain lenders would be the "stalking horse" bidder for the 11 "OpCo" properties including Texas Station, Santa Fe Station and the two Fiestas.
As the stalking horse bid, that group's bid of $772 million would have to be exceeded by other bidders should they want to purchase the properties.
Under a separate deal with secured lenders, the Fertittas and Station co-owner Colony Capital would maintain control of the Wild Wild West along with four of the company's largest properties and biggest cash generators.
Called the PropCo properties, these are Red Rock Resort, Sunset Station, Boulder Station and Palace Station.
Two more properties -- Green Valley Ranch and Aliante Station -- are partnerships with the Greenspun family, owner of the Las Vegas Sun. The partners are attempting to restructure their debt outside of the bankruptcy process and they are not part of the auction.
In a court filing Wednesday, attorneys for Station argued against delaying the auction. Because the recession has reduced the value of Station's assets and its ability to service its debt, there's not enough money to go around in the bankruptcy reorganization to satisfy all creditors and Station says the bondholders are "out of the money."
"The Official Committee of Unsecured Creditor’s likelihood of success on the merits on appeal is low," Station attorneys said in their filing.
"The committee will not be irreparably injured if the stay is not granted because even if the auction were structured exactly as the committee wishes, there is absolutely no evidence that the auction will result in any recovery for the unsecured creditors of Station Casinos that the committee purports to represent in the Chapter 11 cases," Station attorneys said in their filing.
The Station attorneys added that: "A stay of the bidding procedures would result in the potential for a substantial destruction of value for the (casino group) estates and its creditor constituencies. Any delay will place in substantial jeopardy the $772 million OpCo stalking horse bid — a bid that provides an 87 percent recovery to OpCo’s secured lenders and protects OpCo from the enormous downside risk of a 'naked auction."'
Station attorneys said if the auction is delayed, the bondholders should be required to post a $150 million bond to cover any damages sustained by the company and its secured creditors because of the delay.
"A stay of the bidding has the potential to critically damage the debtors’ reorganization. The stalking horse bid is subject to a number of specified termination events, several of which are likely to be tripped if the bidding procedures order is stayed and the auction for the OpCo assets is delayed," Station's filing said.
Station said a bid of about $1 billion for the OpCo properties would be needed to pay off the secured creditors and provide a recovery for the bondholders, and, "The committee has presented no evidence that there is any realistic scenario of that sort of improvement in value."
In the Herbst Gaming case, Zive last year approved a reorganization plan in which secured lenders are taking over the company. Bondholders -- again unsecured creditors -- were out of the money in that case as well and stand to lose $362 million.
In both cases, the bondholders have been unsuccessful in arguing they should recover some money at the expense of secured creditors because management of both companies entered into deals that eventually harmed the bondholders.
In Station's Case, that was the $8.8 billion going-private transaction in 2007 that burdened the company with $1.6 billion in additional debt.
In Herbst's case, the company in 2007 purchased three hotel-casinos in Primm and a property in Northern Nevada just as the economy was heading into recession.
The Herbst bondholders demanded in a November bankruptcy court lawsuit that they recover $153.7 million and that the secured lenders' recovery be reduced by $549 million.
The bondholders' arguments have previously been disputed by Herbst and the secured lenders. Herbst said it was driven into bankruptcy by the recession, not its debt-financed takeover deals.
Station, similarly, has said it was the recession as opposed to the going-private deal that pushed it into bankruptcy.
In the Herbst case, the bondholders are disputing arguments that by delaying the reorganization, Herbst's "business would be in limbo for several years and that employee morale would be adversely affected, leaving the debtors unable to effectively compete with their peers in the industry."
"The debtors have operated in bankruptcy for more than a year, and there is no evidence that continuing to operate under bankruptcy protection would further erode employee morale or place the debtors’ operations in 'limbo,'" attorneys for the Herbst bondholders said in a filing Monday.
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BP would have bought these casinos, but they are in sludge too, so they will have to pass.
Keep in mind that the "secured creditors" are mostly banks and giant hedge funds who will not lose much, while the "unsecured creditors", who will lose everything, are your average local suppliers just trying to make a buck.
The Fertittas and their ilk, including Dana "loudmouth" White will get their get-evens some day. Hope I'm there to see the weep show.
The Station attorneys added that: "A stay of the bidding procedures would result in the potential for a substantial destruction of value for the (casino group) estates and its creditor constituencies
Oh, it's a different story if the insiders stand to lose money but they could care less if unsecured lenders lose their shirts.
doogie,
Do some research. Most of the "unsecured creditors" that are complaining are bondholders. Not your local towel supplier looking to get his invoices paid.
Those bondholders buy high yield, high risk bonds hoping to hit the jackpot. Sometimes you win, sometimes you lose. This time they are on the losing end.
Would be nice if everyone got paid their due but Stations did like 50% of the homeowners in this Valley. They took large loans and things went south. Funny how people look at them worse then the homeowner that sucked all the equity out of their house to buy those fancy cars and boats to play with. Stations still writes 13,000 pay checks each week, guess they are not all bad.
Yes, By vegaslee. But the Fertittas still have the bondholders money in their bank accounts. I seriously doubt they have spent it all on frivilous material toys. Let me borrow from you, put the money in a separate bank account, and then declare bankruptcy and tell you I can't afford to pay you back.
If the bondholders want to get recover their investment, why not put their money where their mouth is and exceed the $772MM bid by OPCO so that the secured bondholders are (more or less) equally compensated as by OPCO's plan and then they own the casinos and can pay themselves out of future profits?
Unless someone, somewhere can exceed the $722MM bid, there is no way they are going to recover.
What kind of an idiot buys bonds from a gambling company run by guys named Fertitta anyway?
The Fertitta brothers are very shrewd. They bankrupted Station's by cashing out their stock holdings in Station when they went private and blamed the economy. They milked the cow dry and then some. Now they're trying to buy back their properties for pennies on the dollar, BRILLIANT!
That's about as close as you can come to having your cake and eating it too.
I think they are scumbags for ripping off the bond holders, but that's just business as usual in our greedy country of today.
Most of the super rich like the Fertitta's are scumbags. That is why they are so wealthy. You have to have the guts of a cat burglar and the morals of a whore and be willing to sell your soul to the devil for material wealth. If that's all that matters to you, then there are the secrets to be super rich.
Dana haters your about the only green thing that grows in the desert. VIVA DANA WHITE!
Most of the super rich like the Fertitta's are scumbags. That is why they are so wealthy. You have to have the guts of a cat burglar and the morals of a whore and be willing to sell your soul to the devil for material wealth. If that's all that matters to you, then there are the secrets to be super rich.
And a fine job they are doing!
right on ironman
I would love for anyone who is posting on this thread to tell me where you can invest money with absolutely no risk at all. You can't! If you don't want to just store your money in a bank, then you have to take some risks with it. When those risks don't work out in your favor, you don't have the right to ask for your money back, period. That is what is happening here. These "unsecured creditor" had full confidence in these companies when they invested with them. Of course, the economy was chugging along nicely then. All of a sudden, once the economy turns and these companies can't service their debt, all of the investors want to cry foul and claim mismanagement! The bottom line is that the invested in something that went south, and they are going to have to take their medicine sooner or later.
By Tico_Suave, you sound like a frontman for Stations. It is quite apparent, to anyone following the case, that the Fertittas raped the company for all its worth and left investors holding the bag. Their arguement that they could not foresee the economic crisis does not hold water, given the amount of checks that were put into their contracts to protect insiders from any mismanagement lawsuits. I think they saw the writing on the wall and quickly acted to reap the profits before the downturn.
They would have been successful if they had only offered better blackjack odds, comps for penny slots, and comps for anyone who presented a pulse.
vegaslee You should get the facts before you make a fool of yourself. Bondholders are not vendors(local towel supplier). Fertitta's still controls the money the bondholders gave them after the big swindle which a corrupt bankruptcy judge is allowing to go forth.
One thing that should be clear is the unsecured creditors are entitled to be involved in the bankruptcy liquidation. Although this is a very complex bankruptcy, the basic tenants of our bankruptcy law still stand true.
The bankruptcy court will liquidize all assets of Station Casinos for as much as they can possibly accrue, then pay off the indebted in a pecking order established by the court. Secured creditors always come first, and after they are paid back, the unsecured take their turn with whatever is left in the pot.
We should shed no tears for any bank or investment firm that purchases high yield bonds in hopes of a vast return. There is inherent risk involved, and now it looks like they have erred in their judgement.
That said, I don't blame the unsecured bondholders for exploring every avenue possible to them to increase the amount Station Casinos assets fetch in a bankruptcy auction. It serves their interests to see the firesale generate as much as possible so they can see some return on their foolish investment.
We don't need to be legal experts to understand that the new Fertitta Gaming is getting a sweet deal on these OpCo properties with their Stalking Horse bid. If not, why are they working so hard to ram this down the bankruptcy courts throat?
To put it into perspective, their offer to purchase the kit and kaboodle of the OpCo properties is almost identical to what Phil Ruffin paid for only one casino, TI, well over a year ago. No, these casinos don't have a Las Vegas Boulevard address or have a giant hotel attached, but the cumulative value of these local properties and their land should well exceed what one Strip Casino is valued at.
Now is the time to get a piece of the pie. I'm going to rush to my bank, take out a loan and buy up all these properties! Anyone else in? Howard Hughes