Station Casinos taps credit line

Station Casinos is tapping the remainder of its credit line in a move bond analysts say could indicate a restructuring that could soon include a bankruptcy filing.

The locals gaming company requested the $257 million remaining in the credit line on Friday, with $239 million of the request funded that day, according to a filing Monday with the Securities and Exchange Commission.

Barbara Cappaert, a bond analyst with KDP Investment Advisors, said the money was taken out in anticipation of Station Casinos’ access to the money being cut if it defaults on its bank covenants before the end of the month, which is expected.

“The move was not surprising given the potential covenant violations Station faces,” Cappaert wrote in an investors’ note. “We see this as a first move in what could likely be a series of moves toward a restructuring of the company’s onerous debt load.”

Station Casinos declined to comment Tuesday beyond the filing. The company had 14,500 workers in January, the last time it made that information available. There have been several cutbacks in employee ranks since then.

The company said in its third-quarter earnings report filed in November, however, that if it was “unable to amend our financial covenants,” it is likely that we will not be in compliance with its debt-to-cash flow covenants beginning on Dec 31.

“Any failure to comply with such covenants would result in an event of default under our Credit Agreement that would entitle the lenders thereunder to exercise their remedies and preclude us from making additional borrowings under the Credit Agreement,” the Nov. 11 filing read.

Station Casinos entered into a new $900 million credit agreement, which included a $650 million revolving credit line, when the company was bought in November 2007.

Station Casinos had $5.4 billion in long-term debt for the third quarter ended Sept. 30. It had paid $281.9 million in interest during through September.

Chris Snow, a debt analyst with CreditSights, said in a note to investors Tuesday that the drawdown provides one of two services — it puts cash on the company’s balance sheet, providing money to navigate a restructuring, or it potentially gives Station Casinos negotiating power with banks since the lenders have more cash at risk.

“(Station Casinos) liquidity options were limited without any concession by the bank lenders as it approached the year-end,” Snow wrote.

The drawdown came the same week the company abandoned a private exchange offer that received little interest from the company’s bond holders.

The company found few takers willing to swap up to $459 million for unsecured notes worth a combined $2.088 billion, some trading as low as 8 cents on the dollar at the time.

The new debt would have been issued as two 10 percent secured term loans due in 2016.

Snow said in note to investors that Station Casinos will “need to obtain a waiver on its bank lenders” or receive an infusion of cash from its owners to avoid a default.

An infusion of $450 million to $500 million by the owners was contemplated as part of the failed debt exchange, but no additional details have been given since November.

The filing announcing the debt exchange did not specify which of the owners — the Fertitta family or Los Angeles-based real estate firm Colony Capital — would provide the cash infusion, saying that “entities affiliated with existing equity owners … or institutions or persons who are investors” will provide the loan.

Colony Capital owns 75.9 percent of the company. Members of the founding family, the Fertittas, own 24.1 percent.

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

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