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Arnold M. Knightly

Lack of talk in Stations' bankruptcy case puzzles judge

14 December 2009

LAS VEGAS, Nevada -- 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.

Lack of talk in Stations' bankruptcy case puzzles judge is republished from