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Arnold M. Knightly

Small lenders feeling irked in Station case

26 August 2009

LAS VEGAS, Nevada –- Some small banks in the Station Casinos bankruptcy are displeased with the way a big bank controlling the funding is behaving.

Deutsche Bank and Station Casinos are trying to "starve out" a group of independent lenders opposed to the proposed bankruptcy funding by making smaller banks pay fees out of pocket while not protecting their interests, according to oppositions filed in bankruptcy court by a group of small lenders.

According to two filings made recently by the independent lenders:

• The proposed funding agreement drains cash from the credit facility to subsidize other insolvent debt structures.

• Administrative agent Deutsche Bank is conflicted in the credit facility because of its large holdings in the other debt structures.

• Although the funding would pay for a $30 million capital and operational expense budget for 13 weeks, no money would go to the independent lenders.

• The independent lenders were rebuffed in their attempts to discuss restructuring plans for six months before Station Casinos Chapter 11 bankruptcy filing in late July.

Deutsche Bank responded in court papers Friday "that a majority of lenders" holding nearly 70 percent of the loans have approved the funding, called cash collateral. JPMorgan Chase, Bank of Scotland, Wachovia Bank and Bank of America are also party to the loans.

The bank said nine all-lender conference calls or meetings were held before the bankruptcy filing.

Thomas Friel, Station Casinos' chief accounting officer, he said in a recent filing that the funding and budget were agreed to after months of discussions by 70 percent of lenders while only needing a simple majority.

"A failure to fund these expenditures would result in irreparable injury to the (company), their estates, and their creditors and equity holders," Friel's filing said.

The independent lenders claim Deutsche Bank is conflicted as administrative agent on a $900 million credit agreement the lenders are party to because the bank has more of an investment in a $2.475 mortgage facility.

"Deutsche Bank ... has an obvious motivation to protect its interest" in mortgage-backed securities loan, "even at the expense of the operating company credit facility," French bank Natixis said.

The German bank holds $1.4 billion to $1.5 billion of the mortgage-backed securities, but only $186.5 million of the $900 million credit facility. It also holds as much as $200 million of a $250 million land loan.

Part of the bankruptcy funding is furnished through the $900 million credit facility in which the independent lenders are invested.

The independent lenders are a group of 10 banks including Natixis, Bank of Hawaii, First Tennessee Bank, General Electric Capital Corp. and the Bank of Nova Scotia.

A hearing on Station Casinos motions is scheduled for Sept. 2 in Reno. Unsecured creditors are scheduled to file their opposition to Station Casinos' plan today.