Wednesday, February 4, 2009

Station Casinos Seeks Prepackaged Bankruptcy

In a press release filed yesterday, another highly leveraged gaming LBO Station Casinos announced that it was pursuing a pre-packaged restructuring with its creditors. As part of the deal, sponsors Frank Fertitta III and Colony Capital would invest $244 million in the company if bondholders of its $2.3 billion in debt agree to a debt-for-cash and debt swap.

The company announced it would not make the $14.6 million payment due February 1 on its $450 million 6.5% notes due 2/2014. Additionally the company's cash balance has dropped dangerously low to $350 million to fund the business in the near-term. As the company has about $5.3 billion of debt, plus just posted some very ugly financial results, it will definitely need all the cash it can get. Surprising is that the company has allegedly hired Lazard to be financial advisor. Hopefully Station is aware Lazard's inability to procure a DIP for Nortel was the reason why that company had to go chapter.

As part of the prepackaged plan, the company will try to force holders of $2.3 billion of notes to convert into $290 million of cash as well as accept $1.01 billion in new (probably not that much more valuable) debt. If its gets the required consents, the company will promptly file for Chapter 11 to consummate the exchange.

One can only commiserate with Colony and the Fertittas who spent $5.4 billion in equity to buy the company in an $8.7 billion LBO in mid 2006. Obviously that equity is now worthless.

According to Frank Fertitta who recently has been blistered in some bad deals, Landry's failed LBO most notably, "We believe the proposed restructuring plan is in the best interest of all of our constituents. We have an outstanding company, a loyal customer base and we believe the best team members in the industry. It is no secret that current economic conditions in our country have had an adverse effect on Las Vegas in general and the casino business in particular. However, we believe that the steps we have taken and those we are proposing to take will result in our company being well positioned for the future."
An intrepid reader has caught that the Landry's Fertittas are not the Station Fertittas. Frank (Vegas) and Tilman (Rotten seafood) are cousins, but apparently that's where their fiduciary commingling ends.
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