Hearings could be pivotal in Station case

Station Casinos and its lenders and creditors will begin two days of hearings in Reno today that could set the course for the remainder of the company's bankruptcy proceedings.

The core of the hearing is a request by the locals gaming company to establishing bidding procedures and deadlines for the sale process to auction the majority of the company's assets.

The hearing is scheduled to begin at 1 p.m. in front of U.S. Bankruptcy Court Judge Gregg Zive. It will resume at 10 a.m. Wednesday.

Nancy Rapoport, a bankruptcy law professor at the University of Nevada, Las Vegas, said the case moving forward will depend "a lot on what the court does in terms of deciding bidding procedures" and keeping Station Casinos operating smoothly until any sale or restructuring.

"(This hearing) is pivotal," Rapoport said. "The court will be balancing all sorts of interests to try to figure out the best way to get the highest value for assets of the estate."

Late last week, the official committee of unsecured creditors filed an emergency motion to continue the hearing, claiming its attorneys have not been given enough time for discovery of Station Casinos' plan.

If it is not continued, the committee is asking a series of declarations filed Wednesday by Station Casinos and its banks not be admitted.

"Submission of these declarations at this late date is unduly prejudicial and does not provide the committee and other parties in interest any time to cross examine and evaluate the testimony," the committee said. The filing is scheduled to be heard at the beginning of the hearing.

Station Casinos is asking the court to set procedures to sell 13 casinos, some land holdings and American Indian gaming contracts as one entity. The gaming company believes the package would fetch a larger price than selling the assets in part or individually. The company is seeking to establish a 45-day qualification period for potential buyers. If approved, Station Casinos hopes to complete its sale before hearings in mid-July and emerge from bankruptcy by the end of the year.

Zive is also to hear arguments to further extend the exclusivity period by 60 days where Station Casinos alone can propose a reorganization plan.

If approved, competing proposals from creditors and other parties would not be considered by the court. The exclusivity period would run from mid-May to mid-July and coincide with the proposed sale process.

Station Casinos' founding family is seeking to establish a $772 million stalking-horse or preliminary bid for many of the company's assets through newly formed Fertitta Gaming.

The bid would be in partnership with Los Angeles-based real estate investment firm Colony Capital and lead banks in the bankruptcy, Deutsche Bank and JP Morgan Chase.

The deal calls for $317 million in cash and $455 million in new credit but how much each party would contribute and own has not been disclosed.

The lone objection to the plan is by the official committee of unsecured creditors. The committee objections claim the plan is a "scheme to ensure that the Fertittas retain control" of the company "at as low a valuation as they can get away with."

The plan provides no recovery for unsecured creditors and would wipe out nearly $2.5 billion in unsecured debt, the committee argues in court filings. The plan undermined federal bankruptcy law, the creditors argue, by encouraging debtors to maximize benefits for insiders rather than creditors, the committee said.

Boyd Gaming Corp., a competitor and creditor in the case, withdrew its objections to the plan last week stating partly that many of its concerns ran parallel to the objection by the unsecured committee.

Boyd Gaming spokesman Rob Meyne said Monday the company looks forward to the hearings and moving forward in the process to acquire some or all of Station Casinos assets.

Richard Haskins, Station Casinos general counsel, said in court filings last week that Boyd did not engage Station Casinos regarding the bidding process or becoming the stalking-horse bidder, instead choosing to engage unsecured creditors.

Haskins said Boyd Gaming "appears to be clearly acting as the debtors' primary competitor" determined to "impede reorganization" and "harm" the properties it is in competition with "to further its own business needs."

Haskins, whose filing was made before Boyd Gaming pulled its objections, said a "bona fide bid from Boyd ... would be welcomed if it served to maximize value" but Station has seen no evidence Boyd truly plans to make such an offer.

While the auction plan deals with the bulk of Station Casinos' assets, a separate plan would spin off five of the company's largest resorts into a separate holding company owned by the banks and the company's current owners.

Red Rock Resort, Sunset Station, Boulder Station, Palace Station and the Wild Wild West, as well as some land holdings, would become its own company that lenders Deutsche Bank and JP Morgan would own and sell a 46 percent stake in to Fertitta Gaming for $85.6 million.

Fertitta Gaming would operate the casinos under long-term management contracts that would pay the company
2 percent of the properties' revenues and 5 percent of their cash flow.

The assets are encumbered by nearly $2.475 billion in debt.

Station Casinos will ask the court to roll both plans into a single joint plan.

Station Casinos declined to comment on this week's hearings.

The company, which was founded in 1976, filed for Chapter 11 bankruptcy protection in July with about $5.6 billion in debt.

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