New objections filed to Station Casinos bankruptcy plan

By Steve Green

Tuesday, May 25, 2010 | 9:43 a.m.

Hearings resume Thursday in Reno bankruptcy court on Station Casinos Inc.'s plan to reorganize, involving lenders foreclosing on some of Station's Las Vegas locals casinos and hotels and other properties being auctioned off.

Minority lenders and unsecured bondholders last week filed new objections to the complicated proposal, with bondholders owed $2.5 billion charging members of Station's founding Fertitta family engineered the deals to benefit themselves.

"Given the fact that the same parties were on both sides of the negotiating table, it should come as no surprise that the transactions proposed by insiders, accepted by (secured lenders) Deutsche Bank/JP Morgan, and subsequently signed off by the debtors are tilted in favor of the Fertitta family," attorneys for the bondholders complained in a filing. "The marks of the Fertitta family’s domination over the debtors are apparent throughout the proposed transactions."

The bondholders complained the proposals "work together to transfer value to the Fertitta family" and secured lenders to Station's "PropCo" casinos to the detriment of the creditors to the "OpCo" casino business that would be auctioned off.

Under Station's plan, Station executives and brothers Frank and Lorenzo Fertitta and Station co-owner Colony Capital of Los Angeles would have an ownership stake in and would manage Station's five "PropCo" properties: Red Rock Resort in Summerlin, Sunset Station in Henderson and Boulder Station, Palace Station and the Wild Wild West in Las Vegas.

Red Rock, Sunset, Boulder and Palace would be foreclosed on by Deutsche Bank and JP Morgan Chase as part of this process.

Eleven more properties such as the two Fiestas, Texas Station and Santa Fe Station would be auctioned by the bankruptcy court with the proceeds paying some of the claims of creditors. The Fertittas, Colony and the PropCo lenders plan to bid for Station's interest in the 11 OpCo properties as the "stalking horse" bidder with a bid of $772 million.

Two more properties -- Green Valley Ranch resort and Aliante Station -- aren't included in the auction. They are joint ventures with the Greenspun family, owner of the Las Vegas Sun.

Extensive land holdings in Nevada and California would be divided between the PropCo and OpCo companies.

Critics of the plan -- including independent lenders owed $224 million -- say in court papers that Station and its advisors failed to aggressively market the OpCo properties to other potential stalking horse bidders, the break-up of the OpCo and PropCo properties is proposed in a way that deters bidding for the OpCo properties and that Station has undervalued key OpCo assets that would be excluded from the auction and would be purchased by the new PropCo company.

They also complained that any outside party buying Texas Station as part of the OpCo auction would have to pay the Fertittas' mother $75 million for the land on which the hotel-casino sits, while if the Fertitta brothers and their partners win the auction they'll be obligated to pay nothing for the property.

The bondholders' attorneys said if Texas Station were to be put into bankruptcy, that $75 million liability could be eliminated.

The bondholders' attorneys said the plan to break up the OpCo and PropCo sides of the business has been portrayed as including a "global" settlement of disputes of ownership of assets between the OpCo and PropCo businesses.

"The disputes over ownership are shams — PropCo is merely a 'landlord' and owns none of the" assets excluded from the auction, the bondholders' filing said.

Attorneys for Station, however, said in court papers the proposed auction plan is fair to all parties.

"The (plan) settles many of the potential disputes arising from complicated property rights involved with separating the PropCo and OpCo estates, and this cannot be simply dismissed by calling the disputes over ownership a 'sham,'" Station attorneys wrote in a filing.

Attorneys for Deutsche Bank are also defending the plan, and noted in court papers that prime competitor Boyd Gaming Corp. as well as casino operators Ameristar Casinos, Penn National Gaming, Cannery Casino Resorts and the Palms had been contacted about bidding for Station assets.

Deutsche Bank noted there were risks with choosing Boyd as the stalking horse bidder because Boyd was insisting on more due-dilligence investigation of the OpCo assets than were the Fertittas; and "the Boyd bid involved a significant risk to the operations of the company from, among other things, increased risk of unionization."

"The stalking horse bid, bidding procedures and (other provisions) were the result of vigorous, arm’s length negotiations by the OpCo (lenders) with Fertitta Gaming/PropCo and Boyd, the two biggest players in the Las Vegas locals casino market, as well as discussions with their other major competitors, Penn Gaming and Ameristar," Deutsche Bank said in its filing.

Deutsche Bank said the $75 million for the Texas Station land is appropriate given that estimates for the value of the the property ranged as high as $115 million.

Station filed for bankruptcy protection protection last summer after the recession reduced its revenue and its ability to cover debt payments.

The company on May 17 said it lost $53.5 million in the first quarter as it spent $19.3 million on its bankruptcy reorganization. The loss compares to a loss in 2009’s first quarter of $33.7 million.

Quarterly net revenue of $249.4 million fell 11.8 percent from 2009's first quarter as the recession continued to deter spending at the company’s 18 Las Vegas locals casinos and hotels.