Thursday, April 29, 2010

Casinos: Another Day, Another Hot Mess in Station Bankruptcy Case

Why are we even surprised any more? Station Casinos is under fire for its now controversial plan to emerge from bankruptcy. It's been in a heated war of words with Boyd Gaming lately over the proposal.

In court papers filed Monday, attorneys for Station charged that Boyd has been meddling in the case -- claiming to be a creditor but actually acting as a potential buyer for Station. Station specifically objected to Boyd's insistence that its representative attend depositions in advance of the key reorganization hearing set to begin May 4.

"Boyd had sought to act as the stalking horse bidder in the auction ... but was not successful in negotiating for that position," Station's filing said. "As a result, Boyd’s true status is that of a disappointed bidder for the stalking horse position and a potential competing bidder in the ultimate auction.

"Equally important, Boyd is the debtors’ primary competitor, which means that regardless of the outcome of the auction process, Boyd has every incentive to try to disrupt the debtors’ efforts to preserve and maintain their business operations in a manner consistent with the debtors’ place at the top of the locals gaming market. Thus, Boyd’s posturing has nothing to do with its holdings of insignificant amounts of out-of-the-money bonds and everything to do with Boyd’s effort to try to gain access to debtor’s confidential documents and to attend the depositions in order to disrupt the bankruptcy process and the debtors’ business and obtain sensitive competitive information that it would then use to the detriment of the debtors’ estates.

"Boyd clearly views this as a 'free shot' to harm Station Casinos and gain a competitive advantage; such an agenda is not an appropriate use of creditor standing in these cases and should not be permitted," the Station attorneys charged, adding Boyd has failed to turn over documents related to the case sought by Station and Boyd violated a non-disclosure agreement by working directly with OpCo lenders on competing restructuring proposals.

"From the outset of these proceedings, Boyd has sought to delay, hinder, and obstruct the debtors’ reorganization, obtain access to Station Casinos’ valuable trade secrets, and harass Station Casinos' management. Simply put, Boyd has acted strategically to hurt Station Casino’s reorganization in order to further its own competitive interests. And, if at all possible, Boyd would like to poison the well for other potential bidders for OpCo, so that Boyd can obtain the OpCo assets at fire-sale prices," Station charged in its filing.

And not to be outmatched by Boyd...

But attorneys for Boyd, in denying allegations the company breached the non-disclosure agreement, said: "Boyd Gaming is a party whose involvement in these Chapter 11 cases as both a creditor and bidder already has brought substantial benefit to the debtors' estates, including by increasing the stalking horse bid."

Boyd attorneys also complained that Station attorneys have been making "vastly overbroad" discovery requests for Boyd documents.

"The majority of the debtors' document requests are directed to Boyd Gaming's development of its previous proposals to purchase the debtors' assets," Boyd argued. "Indeed, the debtors even have requested Boyd Gaming's competitive plans on competing with PropCo in the future.

"These topics -- what Boyd Gaming was willing to pay for the debtors' assets in the past, how it arrived at that decision and how Boyd Gaming will compete with PropCo in the future -- bear no relevance whatsoever" to current issues in the case -- amendments to the PropCo master lease between Station and lenders, Station's request that its exclusive period to file reorganizaztion plans be extended and the OpCo bidding procedures, Boyd's filing said.

"Rather, such demands only are designed in an attempt to gain insight into the amount that Boyd Gaming may be willing to bid in the future for the debtors' assets in an auction process in which Boyd Gaming will be bidding against the debtors' insiders," Boyd attorneys said.

And now, the bondholders are raising hell over the proposal:

Bondholders and other unsecured creditors, independent bank lenders and competitor Boyd Gaming Corp. have been attacking the Station plan as favoring the insiders and are likely to continue doing so during bankruptcy court hearings in Reno May 4 and 5. Billions of dollars are at stake in the case as the Fertitta/Colony proposals value the company at about $2.572 billion, while its debts and liabilities were last reported at $6.6 billion.

In a filing Monday, the bondholders asked Judge Gregg Zive to allow competing plans of reorganization to be filed so that creditors can recover more money than what is proposed by the Fertittas, Colony Capital and key lenders Deutsche Bank and JPMorgan Chase Bank.

"The debtors have been given several chances to put forth a good faith plan that benefits all creditors to whom they owe a fiduciary duty. The debtors have not used those opportunities to make progress through substantive negotiations with the vast majority of Station Casinos' creditors. Rather, they have offered sham auctions, one sided 'compromises' and conclusory, opaque rationales for their proposed actions," the bondholders' attorneys argued.

For instance, they charged: "Station Casinos has agreed to give the Fertitta brothers the opportunity to buy all remaining Station Casinos assets for a set price that all third-party bidders are required to top despite the fact that third-party bidders cannot buy the assets that are being stripped away from Station Casinos and handed to reorganized PropCo."

The controversy is swirling around Station's proposal to split up the 5 "PropCo" properties (Palace, Boulder, Sunset, Red Rock, Wild Wild West/Viva, and the Las Vegas Blvd./Cactus Ave. land) from the "OpCo" properties (everything else). PropCo won't be auctioned off while OpCo will... And a consortium of the Fertittas, Colony Capital, and JP Morgan Chase would be allowed to be the "stalking horse bid" in OpCo. And many of the technological tools needed to run OpCo would actually be included in the PropCo holdings. So when considering this, it becomes easier to see why the bondholders and Boyd are upset over Stattion's proposed plan to emerge out of bankruptcy.

It will be interesting to see what the courts finally think about this. Will Station be allowed to get away with it? Or will Boyd end up being in for a really sweet deal?

We know the Fertittas now want to keep everything together in Station world. We also know that the folks at Boyd are licking their chops over Station's assets. And in the end, it looks like we will ultimately still be dealing with a near duopoly on the Vegas locals' casino market. So the more things change with Station, the more they stay the same with locals' casinos?

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