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Best of Howard Stutz

Gaming Guru

Howard Stutz

Isle of Capri could run Station Casinos

7 January 2010

LAS VEGAS, Nevada -- Regional gaming operator Isle of Capri Casinos could become the manager of at least four Station Casinos-owned properties through an agreement reached with one of the bankrupt company's lenders.

A spokeswoman for St. Louis-based Isle of Capri said Wednesday that the company would operate Red Rock Resort, Palace Station, Boulder Station and Sunset Station if the U.S. Bankruptcy Court in Reno rejects Station Casinos' restructuring plans.

Discussions between Deutsche Bank and Isle of Capri were first reported by in December.

Isle of Capri spokeswoman Jill Haynes said the company, which owns casinos in Colorado, Florida, Iowa, Louisiana, Mississippi and Missouri, "has an agreement with the lenders for assistance if the lenders have to take over the assets."

No terms of the agreement were revealed.

Station Casinos, which filed for Chapter 11 bankruptcy protection in August, has until the end of March to file a plan of reorganization with the bankruptcy court.

As part of Station Casinos' 2007 buyout, the company agreed to lease the four casinos for $250 million per year from a subsidiary holding $2.5 billion in debt. Before the bankruptcy filing, part of the $250 million payment was used to pay debt, with the excess cash returning to the parent company.

In December, U.S. Bankruptcy Judge Gregg Zive approved a new lease agreement for the four hotel-casinos, reducing Station Casinos' monthly rent payments by nearly $23 million through February, giving the gaming company and its lenders more time to negotiate a restructuring plan.

If new agreements and a restructuring plan are not prepared by March, Station Casinos could lose control of Red Rock Resort, Sunset Station, Boulder Station and Palace Station to the lenders or another buyer.

Sources said the agreement covers Deutsche Bank if the entity gains control of the four properties. A spokesman for Deutsche Bank was unavailable for comment.

Isle of Capri owned the downtown Lady Luck early last decade but sold its stake in the now-closed casino almost nine years ago.

The company was delicensed by Nevada gaming regulators at the time. Last year, Isle of Capri bought a small stake in a Fernley gaming company and filed a licensing application with the state. Gaming Control Board Chairman Dennis Neilander said Wednesday that Isle of Capri is about three-quarters of the way through the licensing process.

On Tuesday, Isle of Capri signed an agreement to manage the bankrupt Greektown Casino in Detroit. Under the agreement, the company would earn a management fee of $200,000 a month for six months and $250,000 per month thereafter.

In November, Isle of Capri President and Chief Operating Officer Virginia McDowell told the Las Vegas Review-Journal the company was exploring casino management opportunities in Las Vegas and other markets. She said bankruptcy and other financial dealings could disrupt ownership in several casinos.

"We're putting ourselves out there as a stable and experienced team that could come in and operate on a two- or three-year basis," McDowell said.

Isle of Capri owns 14 casinos, including riverboats and racetracks, as well as casinos in the United Kingdom and Bahamas.

Susquehanna Financial Group gaming analyst Robert LaFleur said the Detroit deal and the possible Station Casinos move would provide positive cash flow to Isle of Capri without any additional strain on the company's financial resources.

"We view the Detroit news, coupled with the (Station Casinos) report, as positive developments toward Isle's stated goal of expanding its management and branding efforts, improving cash flow, and strengthening the balance sheet," LaFleur said in a note to investors.

Station Casinos carries some $6.8 billion in debt.

The Isle of Capri agreement is separate from an offer made last month by Boyd Gaming Corp. to acquire Station Casinos 18 properties, land holdings and other assets for $2.45 billion in cash and assumed debt.