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June 17, 2019

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Regulators keep tabs on Station, proposed restructuring

Nevada gaming regulators, now keeping a closer watch on Station Casinos, say its financial woes aren’t causing any serious regulatory concerns, even though Station landed on a national magazine’s list of companies that may not survive 2009.

Dennis Neilander, chairman of the state Gaming Control Board, said the Las Vegas-based locals casino giant is under increased scrutiny since the economy soured and credit dried up after the $9 billion deal in 2007 that took the company private.

“We’ve been in extensive communication with (Station) up to this point because the board needs to be positioned to understand what’s being proposed so we can react to whatever is ultimately agreed upon,” Neilander said.

What’s being proposed is a restructuring plan that would keep Station’s founders, the Fertitta family, and new private-equity partner Colony Capital in control of the company that operates 11 casinos in Southern Nevada. The plan, considered a “prepackaged bankruptcy,” reduces debt and interest payments in exchange for new bond notes due on later dates and cash.

The plan was announced last week and was one of two significant financial developments involving the struggling casino industry. In an unrelated announcement, Wynn Resorts said it is instituting cost-saving initiatives in an effort to save $75 million to $100 million.

Neilander said Station’s risk level has gone up over the last few months so, as a result, the company is subject to more frequent reviews by Control Board auditors. He said a board committee continually analyzes every gaming company in Nevada and develops a risk profile based on their respective financial conditions. The companies with the highest risk are audited more frequently.

“Some companies have liquidity problems, some have covenant problems,” Neilander said. “Theirs is a covenant problem.”

Neilander said liquidity issues are a greater cause for concern because regulators need to be assured a company has enough cash available to pay patrons who win wagers. Station has an adequate cash position to avert any patron disputes, he said.

Neilander’s comments came before a U.S. News & World Report story Feb. 6 listed Station as one of 15 companies that might not survive 2009. The list included Rite Aid, Chrysler, Dollar Thrifty Automotive Group, Six Flags, Blockbuster, Krispy Kreme and Sirius Satellite Radio.

It also included two other companies with Southern Nevada connections — Landry’s Restaurants, a sister company to the corporation that operates Golden Nugget casinos in downtown Las Vegas and Laughlin, and Trump Entertainment Resorts Holdings, the casino company operated by real estate magnate Donald Trump. In Las Vegas, Trump operates a luxury hotel that doesn’t have a casino. All of Trump’s casino assets are in Atlantic City.

The story on Station said, “Las Vegas has already been creamed by a biblical real-estate bust and now it may face the loss of its homegrown gambling joints, too. Station ... recently failed to make a key interest payment, which is often one of the last steps before a Chapter 11 filing. For once, the house seems likely to lose.”

Station officials had no comment on the story.

Actually, Station has made no secret of its plans to file for bankruptcy protection and it acknowledged Feb. 2 in a news release it elected not to make a scheduled $14.6 million interest payment.

“We believe the proposed restructuring plan is in the best interest of all of our constituents,” Station Chairman and Chief Executive Frank Fertitta said in the release. “We have an outstanding company, a loyal customer base and we believe the best team members in the industry.

“It is no secret that current economic conditions in our country have had an adverse effect on Las Vegas in general and the casino business in particular,” he said. “However, we believe that the steps we have taken and those we are proposing to take will result in our company being well positioned for the future.”

To approve the prepackaged bankruptcy plan, two-thirds of the bondholders must sign off on the deal by midnight EST on March 2. That deadline could be extended.

The current debt covenants involve $2.3 billion in a series of five notes — 6 percent senior notes due in 2012 ($450 million), 7.75 percent senior notes due in 2016 ($400 million), 6.5 percent senior subordinated notes due in 2014 ($450 million), 6.875 percent senior subordinated notes due in 2016 ($700 million) and 6.625 percent senior subordinated notes due in 2018 ($300 million).

Station officials sweetened the offer to bondholders by offering $244 million in cash for their support.

In addition to announcing the restructuring plan, Station affirmed its cash position of $350 million, but noted that preliminary fourth-quarter results portend a 19 percent decline in revenue from the previous year.

The company expects to report revenue of $290 million for the fourth quarter, which would result in an estimated $2 million loss.

The interest payment due Feb. 1 that the company opted not to pay has a 30-day grace period which sets up a March 3 deadline.

Station officials have indicated the company would continue to operate as it has if the bondholders accept the new terms and the prepackaged bankruptcy moves forward. Such a filing probably could be resolved by fall.

If the bondholders choose not to accept the terms, it could force a bankruptcy filing with more uncertainty. Depending on rulings in Bankruptcy Court, the direction of the company could be turned over to bondholders or a receiver who could seek other alternatives, including the sale of properties or other cost-cutting measures.

Meanwhile at Wynn Resorts, company officials announced in a conference call that it expects to save $75 million to $100 million a year with cost-cutting measures at Wynn Las Vegas and Encore.

The company is planning salary cuts of 10 percent to 15 percent, reduction of hours for full-time hourly workers, elimination of matched contributions to employee 401(k) retirement plans and removal of bonus accruals.

Analysts said the cuts would enable Wynn to avoid layoffs, which could be a morale-booster at a time when many companies nationwide are eliminating jobs and health care plans.

Andrew Zarnett, an analyst with Deutsche Bank, said Wynn continues to dictate room rates on the Strip.

“As a result of Wynn offering lower rates, competitors have been forced to make the touch decision, whether to maintain rates at existing levels and lose market share or cut rates further downward and abate market share cannibalization from Wynn’s Encore and Las Vegas properties,” Zarnett said in a note to investors.

“On the investor call, management stated that occupancy levels were high through Chinese New Year and the Super Bowl, albeit lesser than that of the prior-year period. Of importance, Encore has been well received and is ramping up well despite the deteriorating economic environment.”

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