Las Vegas Sun

March 29, 2024

Bankruptcy judge urges Station Casinos, creditors to negotiate

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RENO – After six hours of arguments, a federal bankruptcy judge advised Station Casinos and unsecured creditors to hold negotiations over a $2.3 billion debt, rather than face legal action.

U.S. Bankruptcy Judge Greg Zive withheld a ruling on the petition by the unsecured creditors to be allowed to sue over the arrangement of the 2007 leveraged-buyout deal that took the casino company private.

Susheel Kirpalani, attorney for the creditors, told the judge the creditors “were left holding the bag” while “insiders and fat cats” got big payouts in the $8.9 billion buyout by Colony Capital and the Fertitta family.

“The unsecured creditors were harmed by the transaction,” Kirpalani argued. He called it a fraudulent transfer.

But Thomas Kreller, attorney for Station, said a suit would result in “acrimonious litigation” and would disrupt the chances of coming up with a plan for the company's reorganization.

He said denial of the unsecured creditors' right to sue wouldn't extinguish the money owed. But permitting a suit, Kreller said, would result in “significant and irreparable harm” to Station.

Scott Kane, attorney for the Special Litigation Committee of the Station board of directors, said it looked into claims and determined that the $8.9 million was not an excessive price to pay for the company at the time. There was nothing at that time to suggest the company would fail, he said.

The creditors claim it was too much and it saddled with company with an additional $1.7 billion in debt. But others suggest it was the downturn in the economy that crippled the company.

Zive said he didn't see any evidence of fraud in the buyout by Colony and the Fertitta family in taking the company private.

Zive advised Station Casinos to allow the unsecured creditors to be a “meaningful participant” in the talks toward reorganization. He said he believed there would be “unintended consequences” if he permitted a suit go forward at this time.

“I find people negotiate when people have a little bit of risk,” in advising the two sides to talk, Zive said. “The creditors deserve to be heard.”

If there are no negotiations, Zive said “I’m willing to rule. It may not be in the best business interest but it will be on the law.”

Kreller said Station “has reached out” to the creditors and “we have not been ignoring them.”

But Kirpalani said the purchase resulted in $196 million to the Fertittas and “other insiders.” The buyout was structured, he said, to “hinder or delay unsecured creditors from being paid.”

Kirpalani compared the money owed to a gambling debt and said Nevada has a law that makes it a criminal offense not to pay a gambling debt.” But Judge Zive said this was not a gambling debt.

There were more than 40 attorneys in the courtroom and there were 20 people on the telephone to monitor the hearing.

Arguments on a second issue in the bankruptcy case were delayed to allow the parties to continue talks. A hearing on that issue will be Jan. 28.

The issue involved Station's willingness to pay the legal fees of a certain group of creditors in exchange for that group dropping its request for an examiner. Two parties oppose the request.

Zive said he needed more details and he “didn’t have any idea of the fees” to be paid to lawyers in this arrangement. He told the parties “to see if you can work it out.”

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