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Arnold M. Knightly

Slump blamed for failure of Station buyout

24 September 2009

LAS VEGAS, Nevada -- A special committee of Station Casinos board of directors has found that 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, according to a report filed Tuesday with the bankruptcy court in Reno.

"Rather than any misconduct or inherent problem with the transaction or the company's business," the report dated Sept. 11 said. "The committee believes that the ultimate failure of the transaction can most directly be explained by the severe, rapid, and unanticipated deterioration of the local, national, and global economies following the closing of the transaction."

The committee found:

• Financial projections for the transaction were reasonable when made, but actual performance did not meet projections.

• The company was not insolvent, and did not become insolvent, because of the buyout.

• The Fertittas and partner Colony Capital had a good-faith belief that the transaction would succeed and the company would enjoy continued growth.

Attorneys for the special committee filed a motion to present the report's findings during a bankruptcy hearing scheduled for Wednesday in Reno.

The special committee was formed to look into concerns raised by creditors about the buyout transaction.

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

In filings since the company filed for bankruptcy in July, bondholders have charged the buyout amounted to a "fraudulent conveyance" that leveraged Station Casinos "to the hilt on four of its most valuable properties, leaving (Station Casinos) and its creditors questionable benefit in return, while insiders of the (company) benefited immensely."

Debtholders in a recently bought-out company can allege "fraudulent conveyance" when they believe the new company is undercapitalized and unable to meet future obligations because of the buyout.

Station Casinos was taken private in November 2007 led by Los Angeles real estate firm Colony Capital and members of the company's founding family, the Fertittas.

The committee report said it was unfortunate that the transaction was not successful for many parties affected, but added that it would not be appropriate to engage in "hindsight analysis."