Fertitta’s Likely to Retain Station Casinos
August 10, 2010
Alexandra Berzon of the Wall Street Journal reports that Frank and Lorenzo Fertitta will likely retain control over Station Casinos in the aftermath of a year long bankruptcy proceeding.
The founding family of Las Vegas casino owner and operator Station Casinos Inc. appeared poised to remain in control of the company as a bankruptcy judge approved a determination that a group backed by the family had made the only qualified bid in an auction for part of the company.
Payout Perspective:
The news that the Fertitta’s were able to retain control of Station shouldn’t come as a tremendous shock; the writing has been on the wall since March. However, I did find the following excerpt particularly interesting:
Under the new plan, the Fertittas took an equity stake in a new company that would own four of Station’s casinos, with lenders owning much of the rest of the new company. That new company then made a $772 million bid for 11 more Station properties to secured lenders owed $900 million, in turn wiping out $2.4 billion owed to unsecured bondholders.
Under the plan, the Fertitta brothers will spend a total of around $160 million for 45% of a company with equity worth around $400 million and debt of around $2 billion.
If you combine the ~$120 million from the 10% stake in Zuffa with the company’s rather aggressive dividend policy over the last few years, the Fertitta’s have received more than enough cash to fund this Station retention bid without dipping into family money.
Station Casinos Reaches Deal with Creditors
March 5, 2010
Steve Green of the Las Vegas Sun reports that the management of Station Casinos have reached a deal in principal with key lenders that will allow them to reorganize and retain control of the company.
While the company didn’t disclose details, the arrangement with lenders holding $2.475 billion of debt secured by four of Station’s most valuable hotel-casinos is expected to result in the lenders swapping some debt for equity in the company.
While there has been discussion in the bankruptcy case that the lenders could take control of the four properties and that the properties would be spun off or sold, the agreement disclosed today does not do that.
Instead, the deal — if approved — would keep the company and its 18 casino properties and extensive land holdings together.
It’s expected members of the founding Fertitta family, along with Station majority owner Colony Capital of Los Angeles, would maintain equity stakes.
The Fertittas would make a substantial, but undisclosed, equity investment and the current management team led by Chairman and Chief Executive Frank Fertitta III would continue to lead the company.
Payout Perspective:
The deal was unofficially announced February 25th; just a few weeks ahead of the deadline imposed upon the parties by US Bankruptcy Court Judge Gregg Zive. The expectation is that a formal announcement will take place this summer.
Note: the “substantial, but undisclosed, equity investment” that the Fertittas will have to make in order to retain control of the company. The cash from the 10% sale of Zuffa LLC. to Flash Entertainment in Abu Dhabi might come in handy.
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.
Station Casinos Bankruptcy Saga Continues
November 27, 2009
Steven Church of Bloomberg reports on the latest developments regarding the Station Casinos bankruptcy process, which has been unfolding over the last several months.
Station Casinos Inc. doesn’t need an examiner to investigate how the company is handling its bankruptcy, the judge overseeing the case said, rejecting part of the takeover strategy pursued by Boyd Gaming Corp.
U.S. Bankruptcy Judge Gregg Zive said at a hearing in Reno, Nevada, that Boyd and other advocates of an examiner appeared to really want a trustee to take control of the company’s bankruptcy case, especially with regard to any potential sale. Zive delayed until Dec. 11 a decision on a related request to end the exclusive right of Station managers to propose a plan to reorganize the Las Vegas-based gambling company.
Payout Perspective:
Station Casinos, owned and founded by the Fertitta family, has been working with creditors since February to restructure nearly $6.5 billion in debt. But in July the corporation filed for bankruptcy.
Now, the Fertittas are fighting to retain exclusive control over the company, and prevent third parties – like Boyd Gaming or other creditors – from establishing competing reorganization bids. We’ll know in the coming weeks whether they’re successful.
There have been rumours in recent months that if things continue to go south at Station, Frank Fertitta III could follow in Lorenzo’s footsteps and join Zuffa in some capacity.
Station Casinos Inc. Downgraded To 'D' On Bankruptcy Filing
July 30, 2009
– Station filed for Chapter 11 bankruptcy protection.
– We lowered our issue-level rating on the company’s senior secured debt to ‘D’.
– We revised our recovery rating on the company’s senior unsecured notes to ’5′ from ’4′.
NEW YORK, July 29, 2009–Standard & Poor’s Ratings Services said today it lowered its issue-level rating on Las Vegas-based Station Casinos Inc.’s $900 million senior secured bank facilities to ‘D’ from ‘CCC’. We removed these ratings from CreditWatch, where we placed them with negative implications on Dec. 15, 2008.
In addition, we revised our recovery rating on the company’s senior unsecured notes to ’5′ from ’4′. The ’5′ recovery rating indicates our expectation of modest (10%-30%) recovery for lenders in the event of a payment default.
We had previously lowered all other ratings on Station, including the corporate credit rating, to ‘D’ following missed interest payments on each of the company’s five senior unsecured and senior subordinated notes earlier this year.
The issue-level ratings downgrade follows yesterday’s filing for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Nevada by Station Casinos Inc. and various of its affiliates. Pursuant to an agreement with the company’s senior secured lenders, none of Station’s casino operating subsidiaries or affiliates were included in the Chapter 11 filings.
This rating action follows our Feb. 4, 2009, research report in which we lowered our corporate credit rating on Station and our issue-level rating on its 6.5% senior subordinated notes to ‘D’ following the missed Feb. 1, 2009, interest payment on the 6.5% senior subordinated notes. At that time, Station also announced a solicitation for votes from eligible institutional holders of its senior unsecured and senior subordinated notes for a restructuring plan under Chapter 11 of the U.S. Bankruptcy Code. We also subsequently lowered our rating on Station’s 7.75% senior notes, 6.875% senior subordinated notes, 6.625% senior subordinated notes, and 6% senior notes to ‘D’, following missed Feb. 15, March 1, March 15, and April 1 interest payments on those notes, respectively.
Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor’s public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating.
Station Casinos Gets Fourth Extension on Restructuring
June 2, 2009
The Las Vegas Review Journal reports today that Station Casinos has received yet another extension to their restructuring plans, allowing to company to avoid a bankruptcy filing for now:
“We don’t know why, yet,” Rapoport, said in response to a question about why Station Casinos’ lenders would agree to another extension. “Four forbearance agreements in a row is awfully nice. Banks are not in business to be nice. They’re also not in business to be mean. They’re in business to make money.”
Rapoport said Station Casinos’ creditors could still be negotiating about which lenders will have priority in a bankruptcy case, she said.
“I wonder how secured any of these banks really are,” Rapoport, a law professor at the Boyd School of Law at the University of Nevada, Las Vegas, said.
“They’re sort of signaling they don’t want to stand on their rights in the bankruptcy,” she also said.
Creditors could also be concerned about how much Station’s assets have been devalued during the recession, leaving the company without strong collateral, she said.
Or, she said, Station could quietly be trying to cut a deal with a buyer to sell some of its assets.
These newest extensions are interesting in that they are for a much shorter time period, keeping Station Casinos on a much shorter leash while in negotiations with debtholders. While there is a clear firewall between the Zuffa-held UFC and Station Casinos, there share a common lineage owing to Lorenzo and Frank Fertitta.
Station Casinos' 6.625% Senior Subordinated Notes Lowered To 'D'
March 20, 2009
NEW YORK, March 20, 2009–Standard & Poor’s Ratings Services said today that it lowered its issue-level rating on Las Vegas-based Station Casinos Inc.’s 6.625% senior subordinated notes to ‘D’ from ‘C’. The rating action reflects the missed March 15, 2009 interest payment on the notes. A payment default has not occurred relative to the legal provisions of the notes, because there is a 30-day grace period to make the payment. However, we consider a default to have occurred, even if a grace period exists, when the nonpayment is a function of the borrower being under financial stress–unless we are confident that the company will make the payment in full during the grace period.
This rating action follows our Feb. 4, 2009 research report in which we lowered our corporate credit rating on Station and our issue-level rating on its 6.5% senior subordinated notes to ‘D’ following the missed Feb. 1, 2009 interest payment on the 6.5% senior subordinated notes. At that time, Station also announced a solicitation for votes from eligible institutional holders of its senior unsecured and senior subordinated notes for a restructuring plan under Chapter 11 of the U.S. Bankruptcy Code. We also subsequently lowered our rating on Station’s 7.75% senior notes and 6.875% senior subordinated notes to ‘D’, following missed Feb. 15 and March 1 interest payments on those notes, respectively.
In connection with the missed interest payment on the 6.875% senior subordinated notes on March 1, 2009, Station also announced that it has entered into forbearance agreements with holders of its five notes issues and its bank group. Under the terms of the forbearance agreement, noteholders have agreed to forbear from exercising remedies with respect to certain events of default, including the company’s failure to pay interest due, until the earlier of April 15, 2009 or the date on which the forbearance agreement terminates pursuant to the terms of the agreement. Under the terms of the credit facility forbearance agreement, lenders have agreed to grant a limited waiver with respect to the Dec. 31, 2008 covenant violation and have agreed to forbear from exercising their default-related rights against the company through April 15, 2009 and against certain subsidiaries of the company that guaranteed the credit agreement through Oct. 10, 2009.
We expect Station to miss the April 1 interest payment on the 6% senior notes. If and as this interest payment is not made, we will also lower the issue-level rating on these notes to ‘D’. Issue-level ratings on these notes and on the company’s credit facility currently remain on CreditWatch, where we placed them with negative implications on Dec. 15, 2008.
Station Casinos' Notes Lowered, Enters Forbearance Agreements
March 3, 2009
NEW YORK, March 3, 2009–Standard & Poor’s Ratings Services said today that it lowered its issue-level rating on Las Vegas, Nev.-based Station Casinos Inc.’s 6.875% senior subordinated notes to ‘D’ from ‘C’. The rating action reflects the missed March 1, 2009 interest payment on the notes. A payment default has not occurred relative to the legal provisions of the notes, because there is a 30-day grace period to make the payment. However, we consider a default to have occurred, even if a grace period exists, when the nonpayment is a function of the borrower being under financial stress — unless we are confident that the company will make the payment in full during the grace period.
This rating action follows our Feb. 4, 2009 research report in which we lowered our corporate credit rating on Station and our issue-level rating on Station’s 6.5% senior subordinated notes to ‘D’ following the missed Feb. 1, 2009 interest payment on the 6.5% senior subordinated notes. At that time, Station also announced a solicitation for votes from eligible institutional holders of its senior unsecured and senior subordinated notes for a restructuring plan under Chapter 11 of the U.S. Bankruptcy Code. We also subsequently lowered our rating on Station’s 7.75% senior notes to ‘D’, following a missed Feb. 15 interest payment on those notes.
In connection with today’s announcement that Station has missed the interest payment on the 6.875% senior subordinated notes, the company also announced that it has entered into forbearance agreements with holders of its five notes issues and its bank group. Under the terms of the notes forbearance agreement, noteholders have agreed to forbear from exercising remedies, with respect to certain events of default. These include the company’s failure to pay interest due, until the earlier of April 15, 2009 or the date on which the forbearance agreement terminates pursuant to the terms of the agreement. Under the terms of the credit facility forbearance agreement, lenders have agreed to grant a limited waiver with respect to the Dec. 31, 2008 covenant violation and have agreed to forbear from exercising their default-related rights against the company through April 15, 2009 and against certain subsidiaries of the company that guaranteed the credit agreement through Oct. 10, 2009.
We expect Station to miss the upcoming interest payment on the 6.625% senior subordinated notes (due March 15) and the 6% senior notes (due April 1). If and as these interest payments are not made, we will also lower the issue-level rating on the notes to ‘D’. Issue-level ratings on these two notes and on the company’s credit facility remain on CreditWatch, where we placed them with negative implications on Dec. 15, 2008.
Ratings List
Station Casinos Inc.
Corp. credit rating D
Rating Lowered
To: From:
6.875% sr subordinated notes D/NM– C/Watch Neg/–
Station Casinos Inc. 7.75% Senior Notes Lowered To 'D'
February 17, 2009
NEW YORK, Feb. 17, 2009–Standard & Poor’s Ratings Services today lowered its issue-level rating on Las Vegas, Nev.-based Station Casinos Inc.’s 7.75% senior notes to ‘D’ from ‘CC’. The rating action reflects the missed Feb. 15, 2009 interest payment on the notes. A payment default has not occurred relative to the legal provisions of the notes, since there is a 30-day grace period to make the payment. However, we consider a default to have occurred, even if a grace period exists, when the nonpayment is a function of the borrower being under financial stress–unless we are confident that the payment will be made in full during the grace period.
This rating action follows our Feb. 4, 2009 research report in which we lowered our corporate credit rating on Station and our issue-level rating on Station’s 6.5% senior subordinated notes to ‘D’. The company announced on Feb. 3, 2009, that it did not make the Feb. 1, 2009 interest payment on the 6.5% senior subordinated notes. At that time, Station also announced a solicitation for votes from eligible institutional holders of its senior unsecured and senior subordinated notes for a restructuring plan under Chapter 11 of the U.S. Bankruptcy Code.
In addition to the missed payments on the 6.5% senior subordinated notes and the 7.75% senior notes, we expect Station to miss the upcoming interest payment on the 6.875% senior subordinated notes (due March 1). If and as this interest payment is not made, the issue-level rating on the notes will also be lowered to ‘D’.
All other issue-level ratings remain on CreditWatch, where they were placed with negative implications Nov. 26, 2008.
Station Casinos Lands on Yahoo! List of Least Likely to Survive 2009
February 9, 2009
To give some perspective on how dire the situation is at Station Casinos, the company was named by Yahoo! Finance’s Rick Newman as one of the 15 companies least likely to survive 2009. The entry for Station reads:
Station Casinos. (Privately owned, about 14,000 employees). Las Vegas has already been creamed by a biblical real-estate bust, and now it may face the loss of its home-grown gambling joints, too. Station – which runs 15 casinos off the strip that cater to locals – recently failed to make a key interest payment, which is often one of the last steps before a Chapter 11 filing. For once, the house seems likely to lose.
According to Newman while the companies on the list come from a number of different industries, they all share many of the same characteristics:
We examined ratings from Moody’s and data from other sources to develop a short list of potential victims that ought to be familiar to most consumers. Many of these firms are in industries directly hit by the slowdown in consumer spending, such as retail, automotive, housing and entertainment.
But there are other common threads. Most of these firms have limited cash for a rainy day, and a lot of debt, with large interest payments due over the next year. In ordinary times, it might not be so hard to refinance loans, or get new ones, to help keep the cash flowing. But in an acute credit crunch it’s a different story, and at companies where sales are down and going lower, skittish lenders may refuse to grant any more credit. It’s a terrible time to be cash-poor.
That’s why Moody’s assigns most of these firms its lowest rating for short-term liquidity. And all the firms on this list have long-term debt that Moody’s rates Caa or lower, which means the borrower is considered at least a “very high” credit risk.
Once a company defaults on its debt, or fails to make a payment, the next step is usually a Chapter 11 bankruptcy filing. Some firms continue to operate while in Chapter 11, retaining many of their employees. Those firms often shed debt, restructure, and emerge from bankruptcy as healthier companies.
But it takes fresh financing to do that, and with money scarce, more bankrupt firms than usual are likely to liquidate – like Circuit City. That’s why corporate failures are likely to be a major drag on the economy in 2009: In a liquidation, the entire workforce often gets axed, with little or no severance. That will only add to unemployment, which could hit 9 or even 10 percent by the end of the year.
