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Arnold M. Knightly

Station Casinos' plan called 'good start'

5 February 2009

LAS VEGAS, Nevada -- A bond analyst with KDP Investment Advisors said she thinks Station Casinos' prepackaged bankruptcy plan "is still fairly paltry," but she and other observers suggested bondholders may decide accepting the offer is a better option than forcing the company into bankruptcy in the current economy.

Although she called Station Casinos' offer "a good start," KDP analyst Barbara Cappaert said she doesn't think it offers bondholders enough.

"This is still fairly paltry in our minds," Cappaert wrote in a note to investors Wednesday.

Still, she said the offer may be "better than the alternative in a traditional Chapter 11 where the entire structure would be negotiated."

The Las Vegas-based gaming company Tuesday said it was asking bondholders holding $2.3 billion in debt to accept between 10 cents and 50 cents on the dollar in cash and new bonds.

The offer was part of a restructuring plan that would allow the company to file for Chapter 11 bankruptcy in March and emerge by this summer with less debt and more cash.

The locals gaming company has been struggling to pay expenses incurred by its $8.5 billion takeover by the Fertitta family and private equity firm Colony Capital 15 months ago. The private equity buyout left the company with $5.4 billion in debt. Since then the economy has soured and Station Casinos and other gaming companies have had their revenues tumble as consumers have curbed spending.

Station said Tuesday in a statement announcing the bankruptcy plan that it has $350 million in cash to pay expenses, fund operations and cover capital expenses.

The recession has crippled other industries and businesses, too, something Michael Sullivan, a University of Nevada, Las Vegas, finance professor said bondholders will need to consider when they decide whether or not to accept Station's proposal.

Sullivan said bondholders, who are mostly institutional investors, probably are having the same kind of problems with many of their other investments. He said investors would probably reap few benefits by forcing troubled companies into bankruptcy in the hopes of getting more money -- especially during a recession.

"You're going to be spread too thin trying to juggle all those problems," Sullivan said. "You're almost better off cutting your losses and getting 50 cents on the dollar instead of 12 cents. So go ahead and do it."

Sullivan said the bondholders need to determine whether they think they can recover more money by accepting the company's offer or by forcing the company into bankruptcy so they can receive an equity stake in the casino company.

"Is an equity stake worth more than the 50 cents on the dollar?" Sullivan said. "I suspect it's not at this economic time."

Also Wednesday, the chairman of the state Gaming Control Board said regulators have met with Station executives to keep informed of parts of the restructuring plan that may need regulatory approval.

"We have a very good understanding of financially where they're at," Dennis Neilander said.

Regulators also have increased the frequency of audits of the company's 18 casinos and are monitoring cash available in the casino cages to ensure the company can pay gambling winnings.

"Through the process, the patrons shouldn't see any difference at all," Neilander said.

A Tuesday-evening e-mail statement from the company said bondholders will have until midnight EST March 2 to vote on Station's plan. If two-thirds of the senior noteholders and two-thirds of the subordinate bondholders accept the company's proposal, Station and Colony officials said they would invest as much as $244 million into the company to maintain their current ownership stakes.

Chris Snow, a bond analyst at CreditSights, told Bloomberg News that "it certainly helps that the sponsors are putting up more capital in the form of equity."

The capital infusion is "a feature that was not in the failed bond exchange in December," Snow said. "Bondholders just have to figure out if they think it's fair."

An earlier debt exchange -- which offered between 20 cents and 54 cents on the dollar in new bonds and 3 cents on the dollar in cash for senior lenders -- was rejected by bondholders in November. It did not include any kind of cash infusion by the company's owners.

Still, Snow said he thought bondholders "would prefer more cash to go their way" than Station is offering in its current plan, which would give bondholders between 3 cents on the dollar and 10 cents on the dollar in cash.

Station Casinos' e-mail said banks holding the rest of the company's debt have agreed to the company's restructuring plan, but the terms of those agreements were unavailable.

Dennis Farrell Jr., a bond analyst with Wachovia Capital Markets, said bondholders need to see those agreements "as it will likely have an impact on future free cash flow" and the value of the company.

"It's still early because that full documentation has not been passed out yet," Farrell said.

Station announced its restructuring proposal a day after missing a $14.6 million bond payment that was due Monday. Station has until March 3 to make the payment and avoid default.

Station Casinos' plan called 'good start' is republished from