Lack of talk in Stations' bankruptcy case puzzles judge

U.S. Bankruptcy Judge Gregg Zive on Friday questioned why none of the parties in Station Casinos' bankruptcy case have met with state casino regulators yet to discuss any of the crucial issues involved in the case.

Zive was surprised to learn Friday that neither Station Casinos nor any of its creditors had talked to regulators at the state Gaming Control Board and Gaming Commission even though the agencies will need to approve any court decisions involving restructuring the company or naming a trustee to operate it during bankruptcy.

"This is not, pardon the Western expression, the first rodeo I've been to," Zive said after Michael Wilson, chief deputy attorney general of the attorney general's gaming division, told the court that neither side in the case has discussed the case with regulators. "You're not going to get approval of anything without regulatory participation. And yet nobody has given this court a single declaration, an indication that there has been any attempt to resolve any of these issues with the Gaming Control Board or the (Gaming) Commission."

Zive said it was "not prudent" that neither the creditors' representatives nor Station Casinos' representatives have yet met with regulators.

"It's simply almost unacceptable in an industry that is so heavily regulated," Zive said. "You simply can't move quickly. ... There necessarily must be coordination with the regulatory agency."

Further, he said, "what-happens-if" discussions with regulators should be driving Station Casinos' restructuring talks with creditors, not just economic concerns.

Paul Aronzon, Station's co-counsel, said he told Wilson during a noontime court break that the gaming company had planned to contact regulators once it had assembled a restructuring plan.

"I wanted to make sure (Wilson) knew what we had in mind," Aronzon said. "That is the course we'll take regardless of if the settlement (on a new lease agreement) is approved. We'll meet with the authorities and talk to them."

Regulators noted their interest in the bankruptcy case earlier this month when the attorney general's office filed a notice explaining that any trustee appointed by the court to run Station Casinos would need to be licensed by them.

A hearing on a lenders group's motion to name a trustee has not been scheduled.

But Zive did approve a new lease agreement for four hotel-casinos during the all-day bankruptcy court hearing in Reno and he extended the deadline for Station Casinos to present its own restructuring proposal until March.

He indicated that he wants to see more movement toward an agreement between the creditors and Station Casinos on a restructuring agreement soon. Zive cautioned everyone in the court that he probably would not extend the lease agreement or Station's exclusivity period again in the "absence of extraordinary circumstances."

The proposed lease agreement on the hotel-casino properties calls for reducing Station Casinos' monthly rent payments of nearly $23 million through February, giving the gaming company and its lenders more time to negotiate a restructuring plan.

If new agreements and a restructuring plan are not prepared by March, Station Casinos could lose control of Red Rock Resort, Sunset Station, Boulder Station and Palace Station to the lenders or another buyer who is not properly licensed.

Station Casinos attorney Thomas Kreller argued that the agreement was needed or else the company could be forced to sell the properties or turn them over to the lenders. That, he said, could lead to the properties being closed and putting 6,300 employees out of work as well as devaluing the entire company.

"To reject the lease, sweep clean the casinos and hand over the keys and go home strategy, that may work for retailers and other sorts of different operations, but it simply doesn't work here," Kreller said.

As part of Station Casinos' 2007 buyout, the company agreed to lease the four casinos for $250 million per year from a subsidiary holding $2.5 billion in debt collateralized against the properties. Before the bankruptcy filing, part of the $250 million payment was used to pay debt, with the excess cash returning to the parent company.

The bankruptcy filing prevented the excess cash from being returned to Station, spurring unsecured creditors and independent lenders to argue that the payments are shifting value from the parent company to the subsidiary.

Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or 702-477-3893.

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Comments

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1. Chris.Hardin Dec. 12, 2009 | 7:12 p.m. Report Abuse

   Loyal...
   
   Boyd does not want the 4 named casinos because they carry the bulk of the debt. Boyd does not want to assume a huge amount of debt. It can procure the remainder of the properties with little extra debt.
   
   As for the four propeties, they earn a profit at the operational level. It's the debt service that is hurting them. They will wallow in Chapter 11 until the debt is negotiated downward. Loyal... I am a commercial banker with more than two decades of high level experience. Rarely would I shut down a operating, cash-flowing property. What is the sense in that? I would simply hire a 3rd party management team to keep things running until they can be sold.
   
   There are plenty of potential buyers sniffing around these 4 properties subject to a debt work-out, which will happen. As a lender I can sell an operating property for far more than I can sell a closed propery. Hence, I would keep it open. Any saying they are going to close the properties is full of C. Will not happen.

2. Loyal Employee Dec. 12, 2009 | 6:15 p.m. Report Abuse

   But Boyd's EXCLUDED these same four properties from their initial purchase offer! What is it about these four casinos that:
   A. Made Boyd's offer to buy up virtually everything else?
   B. Made Judge Zive (technically, rather, the reporter in this story) threaten to CLOSE these same four casinos in the event a restructuring agreement is not reached before a certain(uncertain!)date?
   In other words, I guess I'm playing the "why me?" game; it seems the entire bankruptcy process is going to leave arbitrary groups of families relatively unscathed, and an equally arbitrary group UNEMPLOYED!

3. SO? Dec. 12, 2009 | 6:15 p.m. Report Abuse

   Judge ZIVE approved and extension until MARCH????? This is nuts, but it's the same old story.. The longer the judge can drag it out the more money his "buddy" bankruptcy attorneys can make. I guarantee you that it wouldn't take 100 days for Stations to come up with a "plan", unless they have an 8th grader for a CFO.... In the meantime Stations management can continue to get paid too.

4. Chris.Hardin Dec. 12, 2009 | 5:22 p.m. Report Abuse

   Loyal employee:
   
   Neither the judge nor the lenders will close the casinos. There is no chance of this happening. As to the eventual security of individual jobs, this depends on the who ultimately owns the property. Most operational jobs will be unaffected as they are needed for the day-to-day operations. The most likely affected would be admin and management jobs. For example, if Boyd is the new owner they may not need extra admin and/or may choose to bring in their own management team. But they will certainly need the bulk of the regular labor force. An empty casino with no emplyees is not worth very much money.

5. Loyal Employee Dec. 12, 2009 | 4:56 p.m. Report Abuse

   Thanks for the SOMEWHAT-uplifting response; BUT...What's to come of our (employees of the four properties named above) jobs if (when?) these casinos are the ones forcibly sold off by simple virtue of the fact that our property was among the secondary lender's lease? In other words, are the workers at, say, GVR, Texas, Santa Fe, etc. in better employment shape than those of us who chose to stay with Stations' older and more established properties? Most of those employed by this company would like to keep it that way, and the thought that our jobs could be wiped out at the whim of a judge in the next few weeks is dis-heartening, to say the least!

6. Chris.Hardin Dec. 12, 2009 | 2:40 p.m. Report Abuse

   Local employee..
   
   Generally speaking your job is safe. A casino is worth much more money to a buyer or investor (or lender) open than closed. A closed casino is only worth the building and the land. Casinos are only closed in extreme cases. Therefore, all the Station casino's will remain open assuming that they have positive Earning Before Interest, Taxes, Deprec. & Amort (EBITDA). The debt can and will be written down so this is not a factor.

7. Loyal Employee Dec. 12, 2009 | 1:18 p.m. Report Abuse

   Does this mean I will get to keep my job until March? After then, it seems I'll become a loyal employee of "Deutchebank Station"? Please clarify...I can't be the only one of the 6,300 Stations employees (from the four named properties) who has been following this nearly-incomprehensible series of rulings, and is wondering if Judge Zive is going to ALLOW us to keep our jobs week-to-week! Real advice, anyone?

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