LOCAL GAMING: Stations seeks restructuring - News

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Feb. 04, 2009
Copyright © Las Vegas Review-Journal

LOCAL GAMING: Stations seeks restructuring

Company asks for bondholder approval

By ARNOLD M. KNIGHTLY
LAS VEGAS REVIEW-JOURNAL

Frank Fertitta III
Station Casinos CEO points to how economic slump has hurt gaming

Station Casinos is asking its bondholders to approve a restructuring plan that could see the company emerge from Chapter 11 bankruptcy by this summer, the locals gaming company announced late Tuesday.

The Las Vegas-based company's restructuring proposal comes a day after it missed a $14.6 million bond payment that was due Monday.

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Bondholders will have until midnight EST March 2 to accept the company's proposal, which would allow Station Casinos to file for a voluntary Chapter 11 bankruptcy to restructure the company's debt load, according to a release distributed late Tuesday.

If enough bondholders approve the plan, the gaming company's owners -- the Fertitta family and private equity firm Colony Capital -- said they would put up to $244 million in cash into the company as part of the restructuring.

"We believe the proposed restructuring plan is in the best interest of all our constituents," Chairman and Chief Executive Officer Frank Fertitta III said in the e-mailed statement.

The company would continue to operate its 13 casinos, including Palace Station, Texas Station, Red Rock Resort, Sunset Station and Boulder Station, without interruption under the proposal.

Station Casinos also operates the newly opened $662 million Aliante Station and Green Valley Ranch in partnership with the Greenspun Corp. under separate entities that would not be affected by the plan.

In its statement, the company, which was taken private about 15 months ago in a $8.5 billion buyout by the Fertittas and Colony Capital, said it has $350 million in cash to pay expenses, fund operations and to cover capital expenses.

The housing market bust and recession has hit Station Casinos hard. It has struggled to make debt payments while its revenues and cash flow have fallen as consumers have cut back sharply on gambling and other spending in Las Vegas.

The private equity buyout left the company with a $5.4 billion debt load, with bondholders holding nearly $2.3 billion of that debt.

Two-thirds of the company's bondholders will need to approve the restructuring proposal before it can be submitted to a bankruptcy court.

Under its plan, Station Casinos is proposing to buy back the bonds in exchange for new notes that would reduce the company's overall debt and its interest rate burden.

Senior bondholders would receive 40 cents on the dollar in new notes and 10 cents on the dollar in cash while subordinate bondholders would get 7 cents on the dollar in new notes and 3 cents on the dollar in cash.

If they accept, the bondholders would be issued a pair of 10 percent lien notes due 2014.

On Tuesday, the notes the bondholders now hold were trading as low as 12 cents and 2 cents, respectively.

Station Casinos said banks holding the remainder of the company's debt have agreed to the plan. Terms of those agreements were unavailable.

The statement also said the company decided not to make a $14.6 million interest payment that was due Monday on a $450 million note.

The note has a 30-day grace period, which ends March 3, and Station Casinos could make the payment and avoid being in default.

Tuesday's proposal is the second debt exchange offer the company has extended to its bondholders.

The company tried to buy back $450 million to $500 million in debt in November as part of a debt exchange that was rejected by bondholders.

The company found few takers willing to swap up to $459 million for unsecured notes worth a combined $2.088 billion, notes trading as low as 8 cents on the dollar.

The company's statement also included projections that said revenues for the fourth quarter, which ended Dec. 31, will be down 19 percent.

Quarterly revenues will be down to $290 million from $358 million in 2007, driving the company to post a $2 million loss, according to the preliminary estimates.

Cash flow for the quarter is expected to range between $97 million and $101 million, as much as a 26 percent decrease from $132 million in the same quarter 2007.

"It is no secret that current economic conditions in our country have had an adverse effect on Las Vegas in general and the casino business in particular," Fertitta said in the release.

"However, we believe the steps we have taken and those we are proposing to take will result in our company being well positioned for the future."

Colony Capital owns 75.9 percent of the company after contributing $2.7 billion to the buyout. The Fertittas hold a 24.1 percent equity investment after contributing nearly $870 million in stock to the transaction. The Fertittas control three of the five seats on the company's board of directors.

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

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background. S. Summerlin wrote on February 04, 2009 09:46 PM: jcm - I fully understand the bankruptcy laws, and you would be a fool to think that any bankruptcy restructuring would not involve the closing of some of the lesser performing properties. Also, if there is an acquisition of some of the Stations resources by another company, what do you think will happen to the employees? I suggest you ask the old Fiesta employees what happened to them when Stations purchased that property... The last thing this town needs is bankruptcy and consolidation... and if you think that Stations is in trouble because of its management, you haven't been paying much attention to the other gaming companies and other industries... Breaking News wrote on February 04, 2009 08:54 PM: jcm unaware that there is a global recession. More at 11:00 jcm wrote on February 04, 2009 07:07 PM: obviously s. summerlin you do NOT understand the bankruptcy laws. in this case the casinos would continue to operate until they are sold to someone else. what bankruptcy will do is get the incompetent fools who ran the company into the ground out of their management positions. S. Summerlin wrote on February 04, 2009 06:48 PM: Amen "Breaking News" To all you naysayers... what do you think is going to happen to this town if Stations folds? What about those they employ? Breaking News wrote on February 04, 2009 06:38 PM: Las Vegans hope all casinos fail, and are surprised when they realize that it really will affect them, more at 11:00 JD wrote on February 04, 2009 04:30 PM: Maybe the bondholders will GAMBLE and see what the bankrupcy court says they will get. In any event I am sorry to say that Stations may not be the only gaming company to go bk so its not like the fertitas are the only one in this boat. tk wrote on February 04, 2009 03:59 PM: Sounds like they took lessons from General Motors and Chrysler....Pennies on the dollar? And the Banks agreed? How much in bonds does Bank of America own? They don't have to worry, they took $45 billion in TARP/Bailout money...The whole thing stinks...I say sell off some off the assets, (casinos), and pay your bills. Dr. Spock wrote on February 04, 2009 02:59 PM: It's great to get an update on the co-presidents of the Lucky Sperm Club. Here are two fine examples of why inherited wealth should just be confiscated by the government. Brad Gore wrote on February 04, 2009 02:20 PM: It seems Mr.Fertitta is the target of serious animosity in these posts. I do not know him so I will pass no judgement. It is good to see at least one happy face in the realm of Station Casinos. The contrast between this mans expression of joy and the painful anguish on the faces of those tormented locals sitting at the games in any Stations Casino on any day is one of the sad stories of our times. Mike wrote on February 04, 2009 02:13 PM: You got it right "Poker Player". That's the way it works. And, the owners like Fertitta pocket the difference in that they retain all ownership. Plus, the multi-millions of dollar they funnel to themselves in salaries & bonuses every year. Even though their incompetence is the cause of the problem, they won't suffer one cent of loss from it. The bondholders should say "screw you" for 3 cents on the dollar! Force a sale and hope the new buyers are smarter. Although, they won't be any less greedy!! Read All Comments