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Arnold M. Knightly

Committee tells Station Casinos to just say no

28 December 2009

LAS VEGAS, Nevada -- A special committee of Station Casinos board directors recommended Tuesday that the company refuse demands by some creditors to recharacterize a master lease used to help fund the buyout tied to four casinos to a creditor status. Any attempts by creditors to do so will be unsuccessful and costly to the company, according to a filing in the bankruptcy court in Reno.

Some creditors have wanted the lease recharacterized as an unsecured debt and payments on the lease stopped.

As part of Station Casinos' 2007 buyout, the company agreed to lease four casinos -- Red Rock Resort, Sunset Station, Palace Station and Boulder Station -- for $250 million per year from a subsidiary holding $2.5 billion in debt. Before the bankruptcy filing, part of the $250 million payment was used to pay debt, with the excess cash returning to the parent company.

"Based on its conclusion, the (committee) recommends that the company refuse the demand by the creditors' committee to consent to an action seeking to recharacterize the master lease as a disguised secured financing," Tuesday's filing read. "The (committee) further recommends that the company refuse any other demand to commence or authorize an action to recharacterize the master lease. Under the facts and circumstances of this case, the (committee) believes that any litigation seeking to recharacterize the master lease would be unsuccessful, inappropriate and a waste of resources of the company's bankruptcy estates."

Judge Gregg Zive approved a new lease agreement for four hotel-casinos Dec. 11, reducing Station Casinos' monthly rent payments by 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.

The special committee's report will be presented to the court during the Jan. 25 hearing.

The committee involved Station's independent director James Nave, and two outside members not involved with the company or the buyout.

In September, the committee found the economic failure of the company's $5.7 billion buyout was due to the economic downturn and not any inappropriate action by anyone involved in the buyout.

Also, the special committee's legal counsel, Squire, Sanders & Dempsey, filed an application with the court for payment of $708,286 in legal fees and $43,915.44 in expenses.