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October 18, 2017

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AG says any Station Casinos trustee must be licensed by gaming regulators

Unsecured bondholders have asked bankruptcy judge to appoint trustee to supervise Station

Catherine Cortez Masto

Catherine Cortez Masto

Nevada Attorney General Catherine Cortez Masto and gaming regulators are intervening in the Station Casinos Inc. bankruptcy case, demanding that if a trustee is appointed that the trustee be licensed by state casino regulators.

Disgruntled Station Casinos' unsecured bondholders earlier this week asked U.S. Bankruptcy Judge Gregg Zive in Reno to appoint a trustee to supervise Station, charging Station executives have engaged in deals harmful to the bondholders while benefiting secured lenders to the company.

Station has denied those allegations and is expected to ask Zive to reject the request, which was made by attorneys for the bondholders and other unsecured creditors, organized as the case's Official Committee of Unsecured Creditors.

In a court filing Thursday, Masto's office didn't take sides on whether a trustee should be appointed.

But, representing the State Gaming Control Board and the Nevada Gaming Commission, attorneys for Masto argued any trustee "must be accountable to the board and the commission for the conduct of the Nevada licensed establishments prior to exercising any control over the gaming operations.''

"The common thread that runs throughout the history of gaming control in the state of Nevada is that gaming is vital to the state’s life and economy, that the peculiar nature of the gaming industry presents special concerns and problems in the area of control, and that effective control is the only mechanism which will ensure appropriate deference to the health, safety and welfare of the state’s citizenry,'' the state's filing said. "Moreover, the board and commission have special expertise that makes them uniquely qualified to properly administer the necessary controls in implementing the police powers of the state of Nevada over the gaming industry.''

Station and its creditors have not yet responded to the state's filing.

The unsecured creditors, in their filing Tuesday, charged "Station Casinos Inc.'s estate has been hopelessly mismanaged and Station Casinos has proven itself incapable of creating anything save acrimony between itself and its various creditor constituencies.''

The creditors complained that in a recent deal in which Station agreed with secured lenders to temporarily lower the rent Station pays to lease from itself four hotel-casinos, Station "gave away'' assets to its subsidiary "for little to no consideration and without the benefit of any meaningful analysis.''

The unsecured creditors face substantial losses in the case because the recession has reduced the value of Station's assets and left Station unable to service its debt and other long-term obligations last reported at $6.818 billion.

The unsecured creditors also complained in their filing that Station recently compromised with a group of lenders to get the lenders to drop their motion to have an examiner appointed to supervise Station, which has 18 locals casino properties.

The compromise "seeks to buy off parties'' and "such behavior would be unacceptable in any context but especially in a court of equity,'' the unsecured creditors complained.

Zive has not yet ruled on the motion that a trustee be appointed to supervise Station — a motion Station attorneys are sure to fight.

"We believe these claims are wholly without merit,'' Station spokeswoman Lori Nelson said. "We believe they are factually inaccurate.''

Since Station filed for bankruptcy protection in July, the creditors committee has been critical of Station and has been investigating the 2007 deal in which the Las Vegas company was taken private for $5.7 billion by members of the founding Fertitta family and affiliates of investment company Colony Capital of Los Angeles.

The creditors are concerned the transaction has and continues to divert funds away from certain creditors to Station, its insiders and its key lenders led by Deutsche Bank.

Station, in its Chapter 11 case, has asserted the going-private transaction was not successful because of the recession, not because of the terms of the deal.

A key issue in the case is the provision in the going-private transaction in which four of Station's most profitable properties were spun off into a company called PropCo and were encumbered by $2.475 billion in debt. Station and PropCo have common management, but different sets of creditors.

Station now pays PropCo $250 million per year to lease those properties, with the rental payments covering the mortgage. Creditors have attacked the mortgage and lease, saying they're unrealistic given the value of the hotel-casinos has declined due to the recession.

In court filings Nov. 19, Station revealed it and key lenders had reached an agreement to temporarily slash the rent for the four hotel-casinos: Red Rock Resort, Sunset Station, Boulder Station and Palace Station.

Station said that under the deal with Deutsche Bank and other lenders, the rent will be reduced by about $7.7 million per month for December, January and February. The rent will be about $13.8 million per month during this period, Station said.

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