Bankruptcy pressure at Santa Fe stepped up

Eight new bondholders of a Santa Fe Gaming Corp. subsidiary have joined an attempt to force Santa Fe into involuntary liquidation bankruptcy.

Meanwhile, the Culinary Union is endorsing two special directors to serve on Santa Fe Gaming's board of directors under rules that will allow Santa Fe preferred shareholders to vote for two directors for the first time.

The developments are just the latest twist in a bankruptcy struggle between Pioneer Finance bondholders, Santa Fe Gaming and the union, which is in a long-standing dispute with Santa Fe over the company's refusal to allow a card-count union registration at either the Santa Fe or Pioneer hotel-casinos.

Pioneer Finance is a subsidiary of Santa Fe Gaming, which was known as Sahara Casino Partners LP in 1988. Santa Fe Gaming owns the Santa Fe hotel-casino in northwest Las Vegas and the Pioneer hotel-casino in Laughlin, as well as development property on the Strip and in Henderson.

Santa Fe, then known as Sahara Casino Partners, formed Pioneer Finance in 1988 to finance the $120 million acquisition of the Pioneer. In December, Santa Fe, guarantor of the notes, failed to make a $60 million balloon payment that was due on the debt. Last month, three bondholders representing about 13 percent of the outstanding notes filed petitions to try to force Santa Fe Gaming and Pioneer Finance into bankruptcy.

The three bondholders are led by Hudson Bay Partners LP, of New York, headed by David Lesser, which owns 7.9 percent of the bonds. The others include the GMS Group LLC of Atlanta, owner of 4.7 percent of the bonds, and Dr. Robert Baker of Pompano Beach, Fla., who owns four tenths of one percent of the bonds.

Santa Fe Gaming filed papers to try to get those involuntary bankruptcy petitions dismissed. But the company also placed Pioneer Finance in voluntary Chapter 11 bankruptcy earlier this week.

The involuntary petitions were filed as Chapter 7 bankruptcies, a structure that calls for the liquidation of company assets to pay debts. Under Chapter 11 bankruptcy, a company can continue operating while restructuring its debts.

It is expected that the voluntary Chapter 11 filing by Pioneer Finance will render the involuntary Chapter 7 petition filed by Hudson Bay moot. But Santa Fe plans to use the involuntary Chapter 7 filing against Santa Fe Gaming Corp. as a vehicle to seek damages against Hudson Bay and the other filing bondholders. Santa Fe Gaming itself did not file for Chapter 11 bankruptcy.

Santa Fe claims the involuntary petitions were filed in bad faith, as a means of gaining control of the company rather than receiving payment for debts.

Santa Fe says the bankruptcy activity will not affect operations at its casinos.

In filings this week, eight new bondholders joined Hudson Bay's quest to drive Santa Fe Gaming into Chapter 7 bankruptcy. These bondholders own $330,000 worth of the notes, or about one half of one percent. The largest, Donald Q. Taylor, of Keene, Texas, owns $140,000 worth of bonds.

Bondholders trying to force the companies into bankruptcy now control 13.5 percent of the Pioneer Finance bonds.

Santa Fe spokesman Andrew Klebanow noted that dissenting bondholders are still a small minority.

"The overwhelming majority, both in the number of bondholders and the dollar amount of bonds held, have consented to the exchange," said Klebanow.

The company feels the "pre-packaging" of its bankruptcy assures a quick, painless reorganization.

Separately, the Culinary Union endorsed two new directors for Santa Fe's board of directors. The union owns a small number of Santa Fe Gaming preferred and common shares.

Because Santa Fe has failed to make dividend payments to preferred shareholders two years in a row, the preferred shareholders will nominate two special directors to the company's board this year. The elections will increase the number of company boardmembers from six to eight.

In recent months, Hudson Bay has bought up 24.1 percent of Santa Fe's outstanding preferred shares.

The union says two director nominees were approved by the union in consultation with Hudson Bay.

"As we considered doing this, we contacted Hudson Bay and sought out nominees," said Courtney Alexander, the union's research director.

Hudson Bay's Lesser declined comment.

According to a preliminary proxy statement filed with the Securities and Exchange Commission by the Culinary Union, the two director nominees are Peter J. Siris, president of investment management and consulting firm The Siris Group, author of "Guerrilla Investing," and owner of 67,000 preferred Santa Fe shares; and John M. Bradham, partner of Washington, D.C. law firm Peabody & Brown.

Siris nominated himself, and Bradham was nominated by Hudson Bay, states the proxy. Both men have experience with bankruptcy law and corporate turnarounds.

"We are advised that these candidates are endorsed by Hudson Bay Partners LP," states the proxy.

However, the proxy continues, "We have no arrangements with any nominee or preferred shareholder concerning the company or its securities, ... Hudson Bay advises as follows: it has no arrangements with any of the nominees about their conduct as director if elected, nor about future transactions involving the company..."

Alexander added that the nominees have not given the union any assurances of their stance on labor relations.

But Hudson Bay and the union clearly expect the director nominees to see things more in their light.

"We have believed for quite some time that Santa Fe Gaming has not been run in the best interests of employees and investors alike," said Alexander. "We believe (the nominees) have experience that would be beneficial."

Responded Santa Fe's Klebanow: "This is about the selfish motives of a union. It is one more in a series of inappropriate and ineffective attempts to better their position at the bargaining table."

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