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Station Casinos: Boyd Gaming meddling in bankruptcy case

Boyd responds to charges, denies allegations

Updated Wednesday, April 28, 2010 | 3:25 p.m.

Related Documents (.pdf)

Station Casinos Inc. and competitor Boyd Gaming Corp. traded charges against each other this week in Station's bankruptcy case as Station presses forward with a plan in which the company's existing owners would hold an ownership stake and continue to manage the Las Vegas locals casino company.

Under plans set to be aired in Bankruptcy Court in Reno on May 4 and May 5, the founding Fertitta family and co-owner investment house Colony Capital of Los Angeles have agreed to allow lenders to foreclose on four major Station properties collectively called "PropCo": Red Rock Resort, Sunset Station, Boulder Station and Palace Station.

These four properties, along with the Wild Wild West motel and casino and land holdings on South Las Vegas Boulevard, would be spun off into a company in which the Fertittas and Colony would hold a 50 percent ownership stake. Frank Fertitta III, chairman and chief executive of Station, and his brother Lorenzo, a Station director, have formed a company that would manage these properties. This company, to be encumbered by a $1.6 billion mortgage, would be valued at about $1.8 billion.

The Fertittas, Colony and the PropCo lenders also plan to bid during a bankruptcy auction on Station's interest in 13 additional "OpCo" properties as well as extensive land holdings in Nevada and California and Indian gaming contracts. They've proposed to be the "stalking horse" bidder with a bid of $772 million for OpCo, which includes Station interests in joint ventures with the Greenspun family, owner of the Las Vegas Sun.

In court papers filed Monday, attorneys for Station charged that Boyd has been meddling in the case -- claiming to be a creditor but actually acting as a potential buyer for Station. Station specifically objected to Boyd's insistence that its representative attend depositions in advance of the key reorganization hearing set to begin May 4.

"Boyd had sought to act as the stalking horse bidder in the auction ... but was not successful in negotiating for that position," Station's filing said. "As a result, Boyd’s true status is that of a disappointed bidder for the stalking horse position and a potential competing bidder in the ultimate auction.

"Equally important, Boyd is the debtors’ primary competitor, which means that regardless of the outcome of the auction process, Boyd has every incentive to try to disrupt the debtors’ efforts to preserve and maintain their business operations in a manner consistent with the debtors’ place at the top of the locals gaming market. Thus, Boyd’s posturing has nothing to do with its holdings of insignificant amounts of out-of-the-money bonds and everything to do with Boyd’s effort to try to gain access to debtor’s confidential documents and to attend the depositions in order to disrupt the bankruptcy process and the debtors’ business and obtain sensitive competitive information that it would then use to the detriment of the debtors’ estates.

"Boyd clearly views this as a 'free shot' to harm Station Casinos and gain a competitive advantage; such an agenda is not an appropriate use of creditor standing in these cases and should not be permitted," the Station attorneys charged, adding Boyd has failed to turn over documents related to the case sought by Station and Boyd violated a non-disclosure agreement by working directly with OpCo lenders on competing restructuring proposals.

"From the outset of these proceedings, Boyd has sought to delay, hinder, and obstruct the debtors’ reorganization, obtain access to Station Casinos’ valuable trade secrets, and harass Station Casinos' management. Simply put, Boyd has acted strategically to hurt Station Casino’s reorganization in order to further its own competitive interests. And, if at all possible, Boyd would like to poison the well for other potential bidders for OpCo, so that Boyd can obtain the OpCo assets at fire-sale prices," Station charged in its filing.

But attorneys for Boyd, in denying allegations the company breached the non-disclosure agreement, said: "Boyd Gaming is a party whose involvement in these Chapter 11 cases as both a creditor and bidder already has brought substantial benefit to the debtors' estates, including by increasing the stalking horse bid."

Boyd attorneys also complained that Station attorneys have been making "vastly overbroad" discovery requests for Boyd documents.

"The majority of the debtors' document requests are directed to Boyd Gaming's development of its previous proposals to purchase the debtors' assets," Boyd argued. "Indeed, the debtors even have requested Boyd Gaming's competitive plans on competing with PropCo in the future.

"These topics -- what Boyd Gaming was willing to pay for the debtors' assets in the past, how it arrived at that decision and how Boyd Gaming will compete with PropCo in the future -- bear no relevance whatsoever" to current issues in the case -- amendments to the PropCo master lease between Station and lenders, Station's request that its exclusive period to file reorganizaztion plans be extended and the OpCo bidding procedures, Boyd's filing said.

"Rather, such demands only are designed in an attempt to gain insight into the amount that Boyd Gaming may be willing to bid in the future for the debtors' assets in an auction process in which Boyd Gaming will be bidding against the debtors' insiders," Boyd attorneys said.

Nevertheless, Boyd this week withdrew its objections to Station's proposed bidding procedures for the OpCo properties, Station's proposed PropCo lease amendments and Station's request that its period to exclusively file a plan of reorganization be extended.

Boyd attorneys didn't say in court papers why the objections were withdrawn, but spokesman Rob Meyne earlier this week noted certain Station lenders and its unsecured creditors had filed similar objections.

"We respect the fact that the court has a limited amount of time to consider a wide range of matters, and it has become clear, based on the responsive papers filed by Station, that Station is determined to use a portion of that limited time to attack Boyd Gaming, rather than address the important issues at hand," Meyne said.

"We remain very interested in acquiring Station’s assets and continue to believe we are able to offer the maximum value to Station’s creditors," Meyne said Monday.

The Boyd objections were withdrawn after Bankruptcy Judge Gregg Zive on Monday told attorneys for Boyd that Boyd was not entitled to discovery on the contested issues; and attorneys for Station told the judge that as long as Boyd was objecting to its plans, Station would continue to seek discovery from Boyd.

On Monday, Boyd announced plans to drop the objections related to the lease amendment and the exclusivity period -- but to continue pressing its objection on the OpCo bidding issue.

But on Wednesday, Boyd without explanation dropped its objection to the proposed bidding procedures as well.

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