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Arnold M. Knightly

Station Casinos near brink of default

2 February 2009

LAS VEGAS, Nevada -- Station Casinos Inc., which operates Las Vegas-area properties including Red Rock Casino and the 2-month-old Aliante Station, may be on the brink of default, an analyst said Friday.

Station Casinos carried $5.4 billion in debt in the third quarter ended Sept. 30, much of it from the November 2007 management-led buyout with Los Angles-based real estate firm Colony Capital.

That leverage puts Station at risk of breaking terms of bank debt, said Peggy Holloway, a Moody's Investors Service analyst.

"From a liquidity perspective, they are on the brink of bankruptcy," New York-based Holloway said in an interview. "It depends on their ability to negotiate with lenders and willingness to amend the debt."

Robert Chatfield, a finance professor and director of the master's of business administration program at the University of Nevada, Las Vegas, said Friday if the casino company defaults, "creditors would have standing to take actions to attempt recovering their loans," depending on the companies ability to negotiate with lenders.

"The questions to be considered are will the debt be restructured, what kind of new restrictions will be placed on the management of Stations, or who will own the properties," Chatfield said.

The locals casino company stumbled in December when it failed to persuade bondholders to swap securities for debt that was worth less and came due later. Apollo Management and TPG Capital successfully used the same strategy the same month to reduce debt at Harrah's Entertainment.

An infusion of $450 million to $500 million by the owners was contemplated as part of the failed debt exchange, but no additional details have been given since November.

Station Casinos then drew down the remaining $257 million on its credit line in late December in a move analysts said was in anticipation of a default.

Station Casinos spokeswoman Lori Nelson and Colony spokesman Owen Blicksilver both declined comment.

Station said in a Nov. 10 regulatory filing that it was at risk of breaching covenants in a credit agreement by the end of 2008. The company hasn't said whether that occurred. Station has a bond payment due Monday, according to Chris Snow, an analyst at CreditSights in New York. It has probably breached the covenants, Snow said.

The payment is for $450 million of 6.5 percent notes due in 2014, Snow said. The securities now trade at 2.5 cents on the dollar, down from 70 cents in February 2008, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority.

All told, Station has $900 million of bank loans rated by Moody's, $2.3 billion of bonds and a $2.475 billion commercial mortgage-backed facility.

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