Bargain hunting

Some smart operators still seem to believe Las Vegas casinos are a good investment.

The problem -- in the midst of a financial crisis -- is debt.

Which gaming properties will remain in the same hands as Las Vegas inevitably emerges from the current economic slump -- and which will have new owners -- will likely depend not so much on which properties can attract customers in the short run, but instead on which can or cannot make their debt payments.

Boyd Gaming -- which currently operates nine casinos in Las Vegas and Henderson -- has not been immune from the slowdown. On Aug. 1, Boyd halted construction of the $4.8 billion Echelon development on the Strip because of that hollow echo everyone can now hear inside the credit markets. The company said it won't restart construction on Echelon this year and is considering scope changes in the project, planned to cover 87 Strip acres including the site of the former Stardust.

Nonetheless, Boyd says it can still lay hands on $2 billion, which it hopes will make it the equivalent of the one-eyed man in the land of the blind.

On Monday, Boyd Gaming Corp. told the Securities and Exchange Commission it has made a $950 million offer to acquire a significant portion of rival Station Casinos. Both chains substantially target the Las Vegas "locals" casino market, with resort and gaming properties off the Strip. For instance, Boyd's Sam's Town and Station's Boulder Station substantially anchor the east side's Boulder Strip.

Only a few years ago, Station Casinos was considered one of the "best buys" among American gaming stocks, showing healthy multiples in stock price. But the firm, founded and still controlled by the Fertitta family, went private in November 2007 in a $5.4 billion private equity-financed deal, and additionally assumed massive debt to complete the Red Rock Resort and aggressive recent expansions, some (including Green Valley Ranch Resort and Aliante Station) in joint venture partnerships with the Greenspun family.

Station Casinos has been in financial trouble for much of the past 12 months and is on the brink of filing for bankruptcy. But because the company's prepackaged bankruptcy proposal would give bondholders only 10 cents to 50 cents on the dollar in new notes and cash, it appears rival Boyd sees an opportunity to pick off the bulk of the thriving Station properties at a fire-sale price -- bypassing only those properties heavily encumbered with debt -- while still offering Station's bondholders a better deal.

Under the proposal, Boyd Gaming would acquire the bulk of Station Casinos' 18 Southern Nevada properties, including Green Valley Ranch Resort, Aliante Station, Santa Fe Station, Texas Station, Wild Wild West, the two Fiesta properties in Henderson and North Las Vegas, and several smaller non-hotel gaming businesses, including the Wildfire on Rancho Drive.

Station Casinos would be left with Palace Station, Boulder Station, Sunset Station in Henderson, the massive Red Rock Resort and 356 acres of undeveloped land the company controls in the Las Vegas Valley. Those four casinos have almost $2.5 billion in debt tied to them, according to a Station Casinos filing with the SEC last August.

"I think Boyd is trying to take advantage of a potential opportunity and capitalize on the bankruptcy proposal," Deutsche Bank gaming analyst Bill Lerner said after news of the offer surfaced.

Macquarie Securities gaming analyst Joel Simkins told investors the transaction would give Boyd Gaming control of more than one-third of the overall Las Vegas locals gaming market, which has suffered tremendously during the current economic downturn.

In its letter, Boyd Gaming said it has $2 billion available under its revolving line of credit to finance the transaction.

The markets appeared unconvinced. Boyd shares, which have lost more than 85 percent of their value in the past 12 months, closed at $4.25 on the New York Stock Exchange Friday, down 29 cents, or 6.39 percent.

But there are surely some bargains out there for anyone whose crystal ball can tell them when the recovery is due.