The bondholders in the Station Casinos bankruptcy could be trying to position themselves to bring lawsuits in the 2007 multibillion-dollar buyout.
The committee of unsecured creditors is asking the bankruptcy court to protect the creditors' ability to further investigate the transaction that heavily leveraged the company and led it to bankruptcy, an objection filed by the committee in U.S. Bankruptcy Court in Reno shows.
The objection is to a series of motions by Station Casinos that would, the committee said, prevent the committee from investigating the buyout while protecting parts of the company from possible lawsuits.
The company's motions would block the committee from taking actions that might preserve value for unsecured creditors as the bankruptcy proceeds, the filing said.
Citing U.S. bankruptcy code and the Nevada Uniform Fraudulent Act, the committee claims the facts of the $5.8 billion buyout point to a "fraudulent conveyance" that leveraged Station Casinos "to the hilt on four of its most valuable properties, leaving (Station Casinos) and its creditors questionable benefit in return, while insiders of the (company) benefited immensely," the court filing made Wednesday said.
Debtholders in a recently bought-out company can allege "fraudulent conveyance" when they believe the new company is undercapitalized and unable to meet future obligations because of the buyout.
The buyout leveraged Red Rock Resort, Sunset Station, Palace Station and Boulder Station against $2.475 billion in mortgage-backed securities to help finance the transaction.
The buyout, which is a joint venture between Los Angeles-based real estate firm Colony Capital and the Fertitta family, "occurred at a time when the overall economy, as well as the credit markets, were becoming strained," the filing said.
The buyout cost Station Casinos $4.17 billion in costs to purchase stock and incur new debt of $1.6 billion.
The filing says the buyout provided approximately $500 million in payments for insiders, nearly $300 million of which went to the Fertittas, including Chairman and Chief Executive Officer Frank Fertitta III and brother and Vice Chairman Lorenzo Fertitta. The insiders' ownership stake rose to 25 percent.
The unsecured creditors say the buyout could be open to lawsuits under the federal bankruptcy code and state law if:
•The transfer involved property of the company and/ or the incurrence of an obligation of the company.
•The company received less-than-reasonably equivalent value for the buyout.
•The company was insolvent at the time of the transaction or rendered insolvent by the transaction.
•The company was left with insufficient capital and incurred debt that was beyond the company's ability to repay.
"While further investigation is certainly required," the filing said. "There are undeniably substantial issues that must be addressed concerning whether the (buyout) transactions involved constructive and, or actual fraudulent transfers."
Station Casinos declined comment on the filing. A hearing on the company's motions is scheduled for Wednesday in Reno.
Contact reporter Arnold M. Knightly at firstname.lastname@example.org or 702-477-3893.