Creditors’ efforts fall short

RENO -- Station Casinos had a pretty good day in Reno on Wednesday, considering it was in bankruptcy court.

During a day of full hearings in what is expected to be a months-long bankruptcy case, attorneys for a committee of unsecured creditors reiterated their concerns that a swap agreement and other parts of the company's proposals to provide financing to continue operations while in bankruptcy unnecessarily take value away from part of the company, unfairly benefit Deutsche Bank and hurt creditors. But to no avail.

U.S. Bankruptcy Judge Gregg Zive allowed a part of a spending plan that was approved in August to remain in place until the next hearing on the issue, called cash collateral, on Sept. 30.

The committee, which has filed two objections to the plan already, has until Sept. 18 to file further objections.

Zive on Wednesday rejected the committee's argument that the swap agreement should be terminated because the fixed interest rates on the agreement are higher than current market rates.

The swap agreement, which includes $15 million in fees for a 13-week period, should be terminated with the funds remaining in the company, committee attorney Bonnie Steingart argued. The lender on the agreement would then be an unsecured creditor.

The swap agreement loan is leveraged against four properties held outside the company: Red Rock Resort, Palace Station, Boulder Station and Sunset Station.

Station Casinos attorney Thomas Kreller explained that the gaming company decided to keep to the terms of the $1.36 billion swap, even though the rates were higher, to prevent further defaults that would force another $140 million in unsecured creditors into the bankruptcy.

The swap, which set a fixed rate of 5.279 percent, would get a fixed rate of closer to 13 percent in the current lending environment, Shalom Kohn, attorney for lender Deutsche Bank, said.

The day before Wednesday's hearing, which primarily dealt with issues involving financing the company's bankruptcy and continuing operations, a group of independent lenders filed a motion asking the court to hire an examiner to look at several issues in the case.

The lenders want an examiner to look into possible conflicts of interest by Station Casinos board members who rejected Boyd Gaming Corp.'s nonbinding offer of $950 million for most of the gaming company's operating assets.

The independent lenders said Station Casinos initially rejected the offer by saying it was working with creditors on a prepackaged bankruptcy plan, an argument that is no longer valid now that it has filed for bankruptcy. Nevertheless, the company has continued to prevent Boyd Gaming from "any access to due diligence" and still "refuses to entertain any offer to sell their assets -- their creditors' assets to qualified third parties," Tuesday's filing said.

"A third party unencumbered by (Station Casinos') internal conflicts of interest needs to fully and fairly consider the benefits (to creditors) of a third-party transaction like that proposed by Boyd," the filing said.

The independent lenders also want to know why Station Casinos continues to pay interest on a $250 million land loan that is underwater. The loan is secured by 61 acres on the southern end of Las Vegas Boulevard at Cactus Avenue, and some of the 106 acres around the Wild Wild West on Tropicana Avenue west of Interstate 15.

The examiner motion will be heard at the Sept. 30 hearing.

The small banks expressed concern last month with the way Deutsche Bank is controlling the funding, claiming the lead lender and the casino company are trying to "starve out" a group of independent lenders opposed to the proposed bankruptcy funding by making smaller banks pay fees out of pocket without protecting their interests.

The independent lenders are a group of 10 banks including Natixis, Bank of Hawaii, First Tennessee Bank, General Electric Capital Corp. and the Bank of Nova Scotia.

Also in court on Wednesday, Station Casinos was granted another series of motions that allows the locals gaming company and some of its affiliates and lenders to retain attorneys and advisers, subject to court review.

One application was to retain Station's lead counsel Milbank, Tweed, Hadley & McCloy, which worked on the Lehman Bros. and Enron Corp. bankruptcy cases. The Los Angeles-based firm's standard fees range from between $740 to $995 per hour for partners to $160 and $345 per hour for legal assistants, according to court documents.

The firm, which holds a $1 million retainer from Station, collected $4.9 million in fees for restructuring services and $6.8 million in fees for general services for the 12 months before Station filed for bankruptcy on July 28.

Zive also approved motions for Station Casinos to continue paying professionals used in the "ordinary course of business," and rejected a lease for unused office space costing the company between $70,000 and $76,000 per month. The company made its last payment in July.

The lease was for office space that the company left in May 2008 that had been used in planning for the company's Viva project, a CityCenter-type development the company had hoped to build on 110 acres on Tropicana Avenue just west of Interstate 15, where the Wild Wild West hotel-casino stands.

Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or 702-477-3893.