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November 23, 2017

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Creditors press for independent examiner in Station bankruptcy

Station Casinos properties

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Ongoing disputes between Station Casinos Inc. and two groups of creditors continued with more bankruptcy court legal maneuvering this week.

The company and one of the lenders' groups filed legal briefs in advance of a hearing on Nov. 20 on various issues.

Key issues on Nov. 20 will be whether Station should have more time to exclusively file a plan to reorganize its finances and whether an independent examiner should be appointed to study the company's finances and potentially supervise a sale of some of its assets.

Such a sale could generate cash so lenders and creditors could recover some of what they are owed.

With the recession reducing revenue at its locals properties and the company unable to service its $6.49 billion in debt, Station this year defaulted on certain debt obligations and filed for bankruptcy protection in July. Its hotel-casinos remain open.

In court papers filed Monday, attorneys for Station objected to a plan by the case's Official Committee of Unsecured Creditors to hire Sierra Consulting Group LLC for use in its investigation of Station's finances.

The creditors committee has been investigating various issues, including the November 2007 deal in which Station was taken private by Colony Capital of Los Angeles and members of Station's founding Fertitta family.

The creditors are particularly interested in a provision of the deal in which Station leases from itself four of its most important hotel-casinos, called the "PropCo" properties. The rental money covers payments on $2.475 billion in debt encumbering the properties.

The creditors assert this deal should be reworked, charging it's diverting funds from unsecured creditors because the value of the properties doesn't justify the rental payments.

Station has said it's studying potential modifications to the lease, in which it pays $250 million annually to rent Red Rock Resort, Sunset Station, Boulder Station and Palace Station.

In its filing Monday, Station said the creditors already have a financial advisor, Moelis & Company LLC.

"The (creditors') application contains no justification whatsoever for the committee's attempt to engage yet another financial advisor,'' Station said. "The committee's decision to attempt to hire Sierra evidences a fixation with conducting a comprehensive investigation of the November 2007 transaction that completely ignores the fact that the debtors, through the Special Litigation Committee established by the Station Casinos board, have already conducted just such an investigation ...''

Station complained the retention of a second financial advisory firm will lead to inefficiencies, duplication of effort and unnecessary expenses.

Separately, on Tuesday, a different group of minority lenders filed papers opposing Station's request for an extension of the exclusivity period to file a reorganization plan. Station is seeking a four-month extension of the exclusivity period, which expires Nov. 25.

This group, holding more than $200 million of Station debt, also pressed Tuesday for the appointment of an examiner to study the company's finances and to potentially supervise the sale of some Station assets — much like a court-appointed examiner is doing in the Fontainebleau Las Vegas bankruptcy case.

The group, calling itself the Independent Lenders to Station Casinos Inc., agrees with assertions by Station competitor Boyd Gaming Corp. of Las Vegas that an examiner could supervise due diligence that Boyd would like to conduct so it can make a more informed offer for some or all of the Station assets.

An examiner also could independently evaluate the merits of any proposed sale or sale process, the independent lenders said.

"Significantly, this is almost exactly what Bankruptcy Judge (A. Jay) Cristol did last month in the Fontainebleau case. Presented with substantial conflicts of interest among the parties in control of the debtor, Judge Cristol appointed an examiner to supervise and facilitate the sale process,'' the Station lenders said.

The independent lenders complained the Station debtors, "by denying any and all due diligence access for potential buyers, are able to effect a pocket-veto over any sale, or any plan based on a sale, to third parties, like Boyd, that might threaten management's incumbency'' or favor unsecured creditors over the PropCo arrangement.

The independent lenders also complained the Station debtors are "improperly using their exclusivity to unfairly manipulate the process.''

They cited a Nov. 5 amendment to a credit agreement with lead lender Deutsche Bank that the lenders say restricts the buying and selling of loans by lenders through Dec. 15. The restrictions are aimed at maintaining the composition of the lender group that must approve a potential restructuring of Station, the independent lenders' court filing indicates.

The independent lenders complained this amendment was agreed to by Station without court approval. They say it allows trading of claims by lenders aligned with Station and Deutsche Bank but locks the independents into holding their loans which, due to the lack of transferability, "will surely decline in value.''

Station hasn't yet responded to the latest filing by the independent lenders.

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