Judge hints he may OK plan

RENO -- A federal bankruptcy judge said he will rule today on several matters in Station Casinos' Chapter 11 reorganization case although he suggested Thursday that he appeared to be leaning in favor of approving the gaming company's auction proposal for 11 properties.

But Judge Gregg Zive tipped his hand Thursday afternoon after listening to nearly five hours of arguments by attorneys representing unsecured creditors who stand to lose their $2.5 billion investment in the bankrupt casino operator.

Zive said he did not foresee any issues with proposed bidding procedures in which Station Casinos would place 11 properties, including the two Fiestas, Texas Station and Santa Fe Station, into a bankruptcy court auction with the proceeds paying some of the claims of creditors.

"I did not have any problem with the bidding procedures," Zive said during an exchange with New York attorney Bonnie Steingart, who represents the unsecured creditors. "I think the process is appropriate. I think we all understand where we want to be at the end of the day."

Zive said the goals for everyone are to get the best possible price for the casinos, keep the properties open and keep employees working.

"I think we're at a place where we can do that," Zive said.

Steingart and Los Angeles attorney Eric Winston of Los Angeles argued Thursday that unsecured creditors have been left out of the negotiating process over Station Casinos two-pronged reorganization plan, which was filed with the U.S. Bankruptcy Court in Reno in March.

Under the proposal, four of the company's largest properties -- Red Rock Resort, Palace Station, Sunset Station and Boulder Station -- along with the Wild Wild West and its adjoining 110 acres, would be spun off into a new holding company owned by Station Casinos' lenders -- Deutsche Bank and JP Morgan -- real estate investor Colony Capital, and members of the company's founding family through its newly created Fertitta Gaming.

The second plan calls for the company's remaining 11 casinos, some land holdings and American Indian gaming contracts to be sold in a bankruptcy auction as one entity.

Green Valley Ranch Resort and Aliante Station aren't included in the auction. Those properties are joint ventures between Station Casinos and the Greenspun family.

Land holdings in Nevada and California would be divided between the two groups.

Sandy Qusba, a New York attorney who represents Deutsche Bank, said the steering committee for the lenders that control 60 percent of Station Casinos' bank debt had agreed to the reorganization plan. He said an unsecured lender group holding 25 percent of the bank debt opposes the plan.

"We've been at hand-to-hand combat on this since December," Qusba said. "If this deal is blown up, we'll be mired in litigation."

Fertitta Gaming, Colony and the lenders plan to bid for Station's interest in the 11 properties as the "stalking horse" bidder with an offer of $772 million.

Station Casinos has proposed that the 11 properties be auctioned off as one entity while attorneys for the unsecured creditors hinted more money could be raised if the casinos were sold separately.

Steingart expressed concern additional bids might not surface because Texas Station has a $75 million added cost which covers the casino's land on North Rancho Road and Lake Mead Boulevard. Victoria Fertitta, the widow of Station Casinos founder Frank Fertitta Jr. and the mother of Frank Fertitta III and Lorenzo Fertitta, owns the Texas Station land.

If the Fertitta brothers and their partners win the auction, they will not have to pay for the property.

"That figure covers about 10 percent of the stalking-horse bid," Steingart said. "Any bidder would have to include that amount in their bid."

Another attorney representing unsecured creditors called the $75 million "a poison pill" that could hold back bidders.

Steingart suggested that Texas Station be placed into its own Chapter 11 bankruptcy reorganization so the $75 million liability could be eliminated.

Zive said he would oversee any auction that comes before the court.

"If there is an auction, I will control the auction. That's a foreshadow," Zive said. "I believe in the process. I have to confirm a plan (of reorganization) and any sale is not final until we have gone through the process."

Zive is expected to rule on the entire reorganization plan in July.

Steingart said the lending institutions that negotiated the reorganization plan were insiders who had a vested financial interest in the process and controlled the negotiations, excluding the unsecured creditors.

"The insiders' fiduciary duties involved themselves," Steingart said. "The issues are troublesome because they didn't include the unsecured creditors."

At the hearing's outset, Zive told an attorney for Culinary Local 226 that an independent committee of Station Casinos employees had "no basis" to participate in reorganization proceedings.

He said the workers did not have any standing to file objections to the plan. However, Zive told attorney Kristin Martin she could resubmit her objections to the court.

The Culinary union, which has been trying to organize workers at Station Casinos for several years, is paying legal costs for the group of 10 employees.

"I don't even know if there even is a committee," Zive said.

Zive said he believed Station Casinos' some 12,000 employees were protected in the bankruptcy proceedings because both sides, the company and creditors, were taking steps to keep the casinos open and the employees working.

"Everybody is talking about hiring the employees," Zive said.

Martin said she would resubmit the employees' objections to the reorganization.

She said employees are concerned that they could lose their jobs if the Station Casinos properties are sold through the bankruptcy reorganization.

"We would also like to see Station Casinos stop its anti-union organizational campaign because that costs resources," Martin said.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.