Station Casinos: Judge Urges Negotiation

January 27, 2010

Cy Ryan of the Las Vegas Sun reports that a federal bankruptcy judge has advised Station and its creditors to re-enter negotiations in order to avoid a ruling that may not be in the best interest of the business.

After six hours of arguments, a federal bankruptcy judge advised Station Casinos and unsecured creditors to hold negotiations over a $2.3 billion debt, rather than face legal action.


U.S. Bankruptcy Judge Greg Zive withheld a ruling on the petition by the unsecured creditors to be allowed to sue over the arrangement of the 2007 leveraged-buyout deal that took the casino company private.


Susheel Kirpalani, attorney for the creditors, told the judge the creditors “were left holding the bag” while “insiders and fat cats” got big payouts in the $8.9 billion buyout by Colony Capital and the Fertitta family.


“The unsecured creditors were harmed by the transaction,” Kirpalani argued. He called it a fraudulent transfer.


But Thomas Kreller, attorney for Station, said a suit would result in “acrimonious litigation” and would disrupt the chances of coming up with a plan for the company’s reorganization.


He said denial of the unsecured creditors’ right to sue wouldn’t extinguish the money owed. But permitting a suit, Kreller said, would result in “significant and irreparable harm” to Station.


Scott Kane, attorney for the Special Litigation Committee of the Station board of directors, said it looked into claims and determined that the $8.9 million was not an excessive price to pay for the company at the time. There was nothing at that time to suggest the company would fail, he said.


The creditors claim it was too much and it saddled with company with an additional $1.7 billion in debt. But others suggest it was the downturn in the economy that crippled the company.


Zive said he didn’t see any evidence of fraud in the buyout by Colony and the Fertitta family in taking the company private.


Zive advised Station Casinos to allow the unsecured creditors to be a “meaningful participant” in the talks toward reorganization. He said he believed there would be “unintended consequences” if he permitted a suit go forward at this time.


“I find people negotiate when people have a little bit of risk,” in advising the two sides to talk, Zive said. “The creditors deserve to be heard.”


If there are no negotiations, Zive said “I’m willing to rule. It may not be in the best business interest but it will be on the law.”

Payout Perspective:

The news is slightly encouraging for the Fertittas as Zive has stated he doesn’t believe there’s any evidence to support that the buyout was fraudulent. Station management has until sometime in March to get their house in order and secure a new deal with creditors before a ruling would have to be made by Judge Zive – something that’s likely to be met with a great deal of trepidation from both sides.

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