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Arnold M. Knightly

Station deadline on debt vote looms

2 March 2009

LAS VEGAS, Nevada -- The clock is ticking on Station Casinos' latest attempt to restructure its debt.

Bondholders controlling nearly $2.3 billion in company debt have until midnight EST Monday to accept a debt swap that would presage a Chapter 11 bankruptcy.

If enough bondholders approve the plan, announced Feb. 2, the gaming company's owners -- the Fertitta family and real estate investment firm Colony Capital -- said they would put up to $244 million in cash into the company as part of the restructuring plan.

The debt swap would give bondholders between 10 cents and 50 cents on the dollar in cash and new debt.

However, Station's plan to help the company get through the economic recession could be undermined by an eleventh-hour offer for a majority of the company's operations by a competitor.

Boyd Gaming Corp.'s surprise $950 million offer Monday had analysts telling investors to hold onto their bonds because better offers could be forthcoming.

"For bondholders of Station, this clearly puts the company in play to see who can offer the best deal," KBP Investment Advisors analyst Barbara Cappaert wrote in a note to investors. "We still think either deal would be enhanced with some equity given that eventually, as the Boyd and Colony Capital bids suggest, the value in a distressed buyout of Station is in the long-term growth potential in value from current historically low levels."

Cappaert, who believes bondholders will receive a "slightly higher offer" in the coming weeks, valued the Boyd Gaming deal as slightly better for bondholders than the current Fertitta/Colony offer.

Dennis Farrell Jr., a bond analyst for Wachovia Capital Markets, also deemed Boyd Gaming's offer a better value for bondholders.

Investor reaction to Boyd Gaming's offer was mixed.

Trading of senior notes climbed from 25 cents on the dollar to 35 cents on the dollar the day of the announcement, before finishing the week at 32 cents on the dollar, data from the National Association of Securities Data show.

Station Casinos officials have not said what their next move would be if bondholders reject the offer, but the company has options to avoid default on its debt in the near term.

A 30-day grace period on a $14.6 million debt payment expires March 3; a similar grace period on a skipped $15.5 million debt payment expires March 17.

The company has been struggling to pay expenses incurred by its $8.8 billion takeover by the Fertitta family and Colony Capital 16 months ago. The private equity buyout left the company $5.4 billion in debt. Since then the economy has soured and the revenues of Station Casinos and other gaming companies have tumbled as consumers curbed spending.

Station Casinos said during the announcement of its restructuring proposal that it has $350 million in cash to pay expenses, fund operations and cover capital expenses.

Boyd Gaming, which owns Sam's Town, The Orleans, Suncoast and six other area casinos, said it wants to acquire the bulk of Station Casinos' operations including Santa Fe Station, Texas Station, two Fiesta properties and a 50 percent interest in Aliante Station and Green Valley Ranch Resort.

Boyd Gaming's management talked during Thursday's earnings call about taking advantage of the depressed real estate values to acquire properties in Clark County.

Colony Capital owns 75.9 percent of the company after contributing $2.7 billion to the buyout. The Fertittas hold a 24.1 percent equity investment after contributing nearly $870 million in stock to the transaction. The Fertittas control three of the five seats on the company's board of directors.

Station deadline on debt vote looms is republished from