Rainwater pressures Santa Fe

Texas billionaire Richard Rainwater, whose "friendly" deal to acquire Station Casinos Inc. wound up in court, is apparently trying a different tact to profit from the Las Vegas gaming market.

A Rainwater affiliate called Hudson Bay Partners has filed a petition seeking to force Santa Fe Gaming Corp. and one of its subsidiaries into involuntary bankruptcy for defaulting on $60 million of first-mortgage notes.

Hudson Bay, which Santa Fe said is affiliated with Rainwater's Crescent Real Estate Equities limited partnership, owns $4.7 million or 7.8 percent of the 13.5 percent notes.

Two months ago, Santa Fe said it had received consents from holders of about 75 percent of the notes to delay until next December any action against the issuer, Pioneer Finance Corp., while the subsidiary attempted to reorganize under Chapter 11 bankruptcy protection.

But late Friday, Hudson bay and two other dissenting creditors filed to force Santa Fe and Pioneer into Chapter 7, which would require liquidating the companies' assets and using any proceeds to pay debt.

Santa Fe said Hudson Bay contacted it last Monday and asked that its holdings be treated "in a manner that is inconsistent with the terms agreed to by the consenting holders." The company's statement didn't elaborate, and spokesmen couldn't be reached for comment today.

Santa Fe said it will file suit to block the move by the dissenting creditors and may seek punitive damages if it determines the petitions were filed "in bad faith." Santa Fe said its Las Vegas and Laughlin casino operations should not be effected by the bankruptcy petition.

Crescent's merger agreement with Station Casinos, announced last January, fell apart in August when Station preferred shareholders balked at the compensation offered for their holdings. Station and Crescent have filed suits blaming each other for the failed merger.

Santa Fe said Crescent executives contacted Santa Fe's controlling shareholder Paul Lowden twice over the past two years to discuss a possible merger, but the talks led nowhere. Hudson Bay began buying Pioneer Finance first-mortgage notes last April, Santa Fe said.

So-called "vulture investors" such as Rainwater and fellow billionaire Carl Icahn often buy the senior secured debt of struggling companies with an eye toward taking control should such targets default on debt payments.

Alternatively, the investors may request special treatment, such as higher interest payments or premiums on their investment, in return for agreeing not to force the debtors into involuntary bankruptcy.

Icahn, for example, acquired control of Stratosphere Corp. by buying first-mortgage notes at a steep discount to their face value when it became clear the casino company was unable to service the debt.

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