Santa Fe creditor is now accumulating its stock

One of the bondholders trying to force Santa Fe Gaming Corp. into bankruptcy has bought nearly a quarter of the company's outstanding preferred stock.

Hudson Bay Partners LP, a New York investment firm run by David H. Lesser, bought nearly 2 million shares of Santa Fe preferred stock in a series of open market transactions over the last two months.

The shares represent 22.8 percent of the 8.9 million Santa Fe preferred shares that are outstanding.

The shares last traded at 25 cents.

Lesser is president and general partner of Hudson Bay, which owns 7.9 percent of the outstanding debt of Santa Fe subsidiary Pioneer Finance Corp.

Earlier this month, Hudson Bay and two other Pioneer Finance bondholders filed petitions with U.S. Bankruptcy Court in Las Vegas to try to force both Santa Fe Gaming and Pioneer Finance into bankruptcy.

Santa Fe missed a $60 million balloon payment that was due on the Pioneer Finance notes Dec. 1. Some 77 percent of those noteholders agreed to waive their rights to demand payment on the notes for a couple years, and to exchange them for new notes due in 2006 if the company declares bankruptcy.

But Hudson Bay and two other bondholders -- Dr. Robert M. Baker of Pompano Beach, Fla., and James Baker's GMS Group LLC of Atlanta -- refused to waive their rights or agree to an exchange. Instead, they appear to want payment, and also appear ready to force Santa Fe into bankruptcy to get it.

The Pioneer Finance notes were floated in 1988 to raise the $120 million Santa Fe used to buy the Pioneer hotel-casino in Laughlin. Santa Fe guarantees the notes, and has made its interest payments. But a shaky bond market precluded Santa Fe attempts to refinance the notes last year, and forced the company down the less certain path of renegotiating terms with its noteholders.

Santa Fe also owns the Santa Fe hotel-casino in Northwest Las Vegas, is planning a new hotel-casino in Henderson, and owns Strip property that it leases to the Wet N Wild water theme park.

Hudson Bay's stock purchases raise the specter of a hostile takeover attempt. But the preferred shares Hudson Bay has purchased do not carry voting rights, and in any event Paul W. Lowden, Santa Fe's chairman and president, owns 53.4 percent of the company's common -- voting -- securities.

What preferred shares do bring their owners is the right to semi-annual dividends, or, if Santa Fe misses dividend payments for two years, the right to vote as a separate class for two of the company's eight directors. As it happens, Santa Fe has missed dividend payments for two years, and the preferred shareholders will elect their own two directors at the company's annual meeting this year. No meeting date has been set.

Lesser, reached at his New York office, declined to comment on his intentions, citing the pending bankruptcy proceeding. But documents Lesser filed with the Securities and Exchange Commission Monday reveal some of the give and take that has occurred between his office and Santa Fe:

"The filing persons (Lesser and Hudson Bay) acquired the shares ... for investment purposes. The filing persons recently held discussions with the issuer regarding the possibility of an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the issuer (Santa Fe Gaming), or a change in the present board of directors of the issuer. The filing persons have been advised that the issuer has determined to take no further action with respect to any such corporate transaction or change in the board of directors..."

The document goes on to state that Lesser and Hudson Bay will continue to review their options, which include, "pursuing a transaction or transactions involving a change in control of the issuer," or "the purchase of additional shares or, alternatively, ... the sale of all or a portion of the shares beneficially owned by such filing person in the open market or in privately negotiated transaction to one or more purchasers."

A Santa Fe spokesman declined to speculate on Lesser or Hudson Bay's intentions.

"Santa Fe Gaming is not going to speculate for what reason Hudson Bay Partners has bought this preferred stock," said spokesman Andrew Klebanow.

Klebanow also said Richard Rainwater, the primary stockholder in Crescent Real Estate Equities, the Dallas company that tried to buy Station Casinos Inc. last year, controls Hudson Bay.

Lesser said Rainwater is a stockholder in a company that has an indirect investment in Hudson Bay. Rainwater has no influence or control over Hudson Bay, said Lesser, and had nothing to do with the stock purchases.

The next steps for Santa Fe and Hudson Bay are unclear. A February hearing is scheduled for the Hudson Bay-led involuntary bankruptcy proceeding. Santa Fe has long said it plans to file its own bankruptcy plan which -- with the assent of 77 percent of the Pioneer Finance bondholders -- should be an open-and-shut case, say Santa Fe officials.

Klebanow said the issue will likely come down to the company presenting a federal bankruptcy judge with its plan, and Lesser and the Bakers presenting the judge with a competing plan. With 77 percent of its debtors already in favor of its plan, Santa Fe expects few problems winning that fight.

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