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Station Casinos reaches deal with key lenders, hopes to emerge from bankruptcy

Agreement would keep company and its 18 casino properties together

Updated Thursday, Feb. 25, 2010 | 10:41 a.m.

Station Casinos properties

The clock tower of the Boulder Station hotel-casino obscures the resort's 15-story tower. Launch slideshow »

Station Casinos Inc. today announced it has reached an agreement with key lenders that the company hopes will clear the way for it to receive approval to emerge from bankruptcy this summer.

While the company didn’t disclose details, the arrangement with lenders holding $2.475 billion of debt secured by four of Station’s most valuable hotel-casinos is expected to result in the lenders swapping some debt for equity in the company.

While there has been discussion in the bankruptcy case that the lenders could take control of the four properties and that the properties would be spun off or sold, the agreement disclosed today does not do that.

Instead, the deal — if approved — would keep the company and its 18 casino properties and extensive land holdings together.

It’s expected members of the founding Fertitta family, along with Station majority owner Colony Capital of Los Angeles, would maintain equity stakes.

The Fertittas would make a substantial, but undisclosed, equity investment and the current management team led by Chairman and Chief Executive Frank Fertitta III would continue to lead the company.

“We are extremely pleased to have reached an agreement in principle with certain of our key mortgage lenders for the comprehensive reorganization of our Company,” Fertitta III said in a statement. “This is a very important step in our restructuring process. Our commitment to the successful restructuring of our company is demonstrated by (my brother) Lorenzo and me making a significant investment in the reorganized company. This restructuring will create a much stronger company going forward that will benefit our team members, guests and the Las Vegas community as a whole.”

In a regulatory filing, the Las Vegas company said it “reached an agreement in principal for the comprehensive reorganization of the company with certain of its key mortgage lenders holding the debt secured by Red Rock Casino Resort Spa, Palace Station Hotel & Casino, Boulder Station Hotel & Casino and Sunset Station Hotel & Casino.”

“The company is also making significant progress on its restructuring discussions with other creditor groups,” Station said in its statement.

“As part of the proposed reorganization, the company expects to significantly reduce its secured and unsecured debt and also would have substantial liquidity in the form of new revolving credit facilities and equity infusions.”

The capital infusions include a “significant reinvestment” by the Fertittas “along side certain other creditors and investors in the company,” Station said in its statement.

Station, which filed for bankruptcy reorganization July 28 after the recession reduced revenue and made it impossible to meet its debt obligations, last reported total debt and liabilities of $7.5 billion.

With today’s announcement, Station signaled it’s still not interested in entertaining any buyout offers from competitor Boyd Gaming Corp.

And left unanswered today was the fate of $2.3 billion in unsecured bond debt. The unsecured creditors have been agitating for the right to sue Station to limit their losses. Their request, which Station opposes, hasn’t been ruled on by Station’s bankruptcy judge.

Separately, Station on Wednesday sought bankruptcy court approval for extension of an agreement that lowered the rent Station pays itself to lease the four properties covered in today's announcement: Red Rock Resort and Boulder, Sunset and Palace Station.

The rent is earmarked to cover mortgage payments for the four properties.

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

Wednesday's court filing said this arrangement would be extended to cover the March and April rent payments.

"The debtors, the mortgage lenders ... and the steering committee of (pre-bankruptcy) lenders are engaged in negotiations for a plan of reorganization," Station attorneys said in Wednesday's filing. "The debtors are in preliminary communication with the UCC (Official Committee of Unsecured Creditors) regarding such a plan of reorganization and expect to shortly commence substantive discussions with the UCC."

Station said in court papers the 60-day extension of the reduced-rent agreement would facilitate the restructuring discussions.

The compromise was significant because lenders not a party to the mortgage loans had complained the rental and mortgage payments were excessive, given that the recession has reduced the value of the four hotel-casinos, and were diverting cash to the mortgage lenders to the detriment of other creditors.

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