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Judge delays key part in Station bankruptcy case

Updated Tuesday, Sept. 1, 2009 | 5:14 p.m.

A key portion of a plan to spend cash by Station Casinos Inc. during its bankruptcy proceedings won't be decided at a hearing Wednesday, so parties have more time to assess, adjust and reply to the complex proposal.

A hearing before U.S. Bankruptcy Judge Gregg Zive in Reno on other Station matters is set for Wednesday, but arguments on a plan for the use of cash collateral have been moved to Sept. 25, according to an agreement filed Tuesday by attorneys for Station and lender Deutsche Bank.

An interim spending plan, with some modifications, will remain in effect. The Official Committee of Unsecured Creditors now has until Sept. 18 to file objections to the plan.

The committee has objected to the spending plan now on the table, charging it favors Station and Deutsche Bank at the expense of certain creditors.

In court papers Monday, the committee unleashed a new attack. Its attorneys said the plan provides for an "unlawful" payment of obligations pursuant to an interest rate swap.

The attorneys said the swap, covering $1.3625 billion in debt, is advantageous to Station's "PropCo" casinos only when the London Interbank (LIBOR) lending rate is higher than 5.279 percent.

But the LIBOR rate has been under that rate since Station was taken private in a 2007 leveraged buyout, the creditors complained.

"PropCo pays more than it would have to pay without the swap in place," they alleged, calling it an "unnecessary drain" on Station's cash that creditors have claims against.

The creditors also alleged the PropCo lenders are undersecured in their loans -- that is the value of the hotel-casinos is less than what is owed against them.

The unsecured creditors say the bankruptcy estate should now be able to recapture fees and interest in excess of the value of the collateral -- or recharacterize these payments as payments against principal.

The law disallows the payment of post-bankruptcy interest to undersecured creditors because this would be inequitable to unsecured creditors, the unsecured creditors argued.

Attorneys or Deutsche Bank, in the meantime, have disputed the unsecured creditors' earlier complaints about the payments Station pays to itself for leasing the PropCo casinos.

These payments of nearly $250 million per year are intended to cover the $2.475 billion mortgage against the properties, which are Palace Station, Boulder Station, Sunset Station and Red Rock Resort.

The creditors say some of this cash rightfully belongs to creditors, Deutsche Bank says it's appropriately intended to cover the mortgage loan.

Deutsche Bank also responded to complaints that the leveraged buyout led to the collapse of Station and may have involved the fraudulent conveyance of properties, saying "this was a transaction in which the LBO was funded by approximately 40 percent of equity capital."

"Under such circumstances, there is authority that as a matter of law, an LBO transaction cannot be collapsed to give rise to a fraudulent conveyance," attorneys for the lender wrote.

Deutsche Bank noted that after the LBO, "the country experienced the supervening and unanticipated event of an economic meltdown unmatched since the Great Depression."

"The committee's suggestion that there is some dark secret which is being 'whitewashed' is without basis," the Deutsche Bank attorneys said in Monday's filing.

Hit hard by the recession and in default on some debt obligations, Station and certain subsidiaries filed for bankruptcy protection July 28.

Its casinos and hotels remain open as the company works to restructure its debt totaling $6.4 billion. The company is controlled by Colony Capital of Los Angeles and the Fertitta family of Las Vegas.

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