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Arnold M. Knightly

Station Casinos files for Chapter 11

29 July 2009

LAS VEGAS, Nevada –- Station Casinos on Tuesday filed for Chapter 11 protection after reaching an impasse in months-long negotiations with creditors on a plan to restructure the gaming company's $5.7 billion debt load.

"We have been working with the various creditor groups for months, and it has been very difficult to get all of the creditors to come to a consensual agreement among themselves and with the company," Chief Accounting Officer Thomas Friel said.

The bankruptcy case, which includes parent company Station Casinos Inc. and 17 of its noncasino affiliates, was filed Tuesday afternoon in U.S. Bankruptcy Court in Reno. The noncasino subsidiaries control the company's landholdings in Reno and other nongaming assets.

The company's 18 casino properties and their affiliates were not included in the bankruptcy filing, and Friel stressed that the company's properties will "continue to operate exactly like they do today" while in bankruptcy.

Chief Operating Officer Kevin Kelley added that the bankruptcy will not affect employees or vendors getting paid or the company's reward point system.

"It is business as usual at our 18 operating properties," Kelley said. "Team members, guests and vendors are going to be treated just as they always have been for the last 33 years."

Station Casinos' filing listed $5.7 billion in assets against $6.5 billion in debt. The filing said the company has 510 holders of unsecured and subordinate debt totalling $4.4 billion.

Most of the debt helped finance the company's management-led buyout nearly 21 months ago and raised the Fertitta family's ownership stake from 9.9 percent to 25.1 percent.

The remainder of the company is controlled by Los Angeles-based real estate firm Colony Capital.

Colony Capital declined a request for an interview, instead issuing a statement: "The decision was not taken lightly and we and our advisers believe this move represents the best alternative to protect the company and allow pursuit of our goal to maximize value to the benefit of all stakeholders."

Tuesday's bankruptcy filing is not the prepackaged bankruptcy plan the company announced in February and has been trying to get bondholders to accept since then.

Even before then, in October, the company started discussing a possible restructuring of its debts with creditors, according to the filing.

The prepackaged bankruptcy plan, which would have allowed the company to eliminate about half of its debt, asked investors holding $2.3 billion in unsecured bonds to swap high-cost debt for low-cost debt and cash. Station Casinos' offer would have given the bondholders between 10 cents and 50 cents on the dollar in new secured notes and cash.

Since first proposing the restructuring plan, Station Casinos has entered into a series of forbearance agreements while trying to negotiate a prepackaged bankruptcy agreement with bondholders. The latest one expired July 17, and Station Casinos did not get a formal extension from the bondholders.

Without an agreement with bondholders, Station Casinos decided a bankruptcy filing was the best way to get the company's financial problems straightened out.

Station Casinos, like other local gaming companies, has been struggling to make payments on the heavy debt loads it racked up over the past several years as casino companies were rapidly expanding with easily available credit.

The recession sent visitor volumes and spending plummeting in Las Vegas, hurting casino bottom lines.

"The restructuring of our debt will provide us with the financial flexibility necessary to meet the challenges of the current economic environment," Chairman and CEO Frank J. Fertitta III said in a statement.

Station Casinos said Tuesday that its intent is to emerge from bankruptcy as a stand-alone company.

The gaming company said its secured lenders also had agreed to let Station Casinos borrow up to $150 million in cash from one of the company's noncasino assets. The money would be used to pay normal operating expenses while the company is in bankruptcy. The bankruptcy judge would need to approve that loan.

Bill Lerner, a principal analyst with Union Gaming Group, said Tuesday's filing leaves unclear what Station Casinos is offering creditors in its bankruptcy proposal.

"The operating assets of the casino are not included in the bankruptcy, so that begs the question: What do the creditors get?" Lerner said. "For some reason, that's not disclosed or not clear. It could be some cash consideration or to-be-determined. But more likely, it would be equity or an ownership stake in Station Casinos as it exits bankruptcy."

In November 2007, Station Casinos was taken private in a $5.4 billion buyout by the Fertitta family, the company's founders, and real estate investment firm Colony Capital.

Station Casinos, the dominant locals casino company in Las Vegas, owns and operates Red Rock Resort, Palace Station, Sunset Station, Boulder Station, Texas Station, Santa Fe Station, Wild Wild West, the two Fiesta properties, the Wildfire properties and land holdings in Clark County and Reno.

The company also has a 50 percent interest in Green Valley Ranch and Aliante Station.