Lawyers question Station officials, try to show reorganization plan unfair

By Cy Ryan

Wednesday, May 5, 2010 | 7:48 p.m.

CARSON CITY — If the reorganization plan for bankrupt Station Casinos Inc. is approved and carried out, senior executives will be free to jump ship.

And at a hearing in bankruptcy court in Reno, it was revealed that the Wild Wild West hotel-casino was a money loser.

Attorneys for the creditors conducted exhaustive cross-examinations Wednesday of company officials, trying to show that the proposed reorganization and bidding plan was unfair.

U.S. Bankruptcy Court Judge Gregg Zive withheld a ruling until hearing final arguments on May 27-28.

Thomas Friel, an officer in Station Casinos, said if the bankruptcy plan is completed, the non-competition restriction in hiring between the various casinos would be lifted. He suggested it would create a “jump ball” scenario.

Zive characterized it as the executives being “free agents.”

The reorganization plan splits the casino company into two organizations. Friel said the executives in the 13-casino group would be free to join the company to be run by the Fertitta brothers, Colony Capital, Deutsche Bank and JPMorgan that would control five casinos.

Deutsche Bank and JPMorgan hold a $2.475 billion mortgage to four of Station’s most valuable properties. They would have Frank and Lorenzo Fertitta manage the casinos, and the brothers would buy in for a share.

Friel, under cross examination by attorney Eric Goldberg, testified the Wild Wild West has generated a negative cash flow of $1.6 million a year and has no value in assets.

He was asked why the Fertitta-bank group would want the casino. Friel said Deutsche Bank and JPMorgan own property surrounding the casino and the property could be developed, but it “will be a long time away.”

Thomas Kreller, attorney for the Fertitta-bank group, told the judge the bidding procedure was fair and aimed at generating the maximum price.

The Fertitta group would retain five PropCo properties — Red Rock Resort, Sunset Station, Boulder Station, Palace Station and the Wild Wild West.

The 13 other properties would be auctioned off by the bankruptcy court, with the money raised paying some of the claims of creditors. The Fertitta-bank group would submit a base bid of $772 million for the 13 casinos.

A competitor would have to bid at least $789.5 million to be successful.

The attorneys for the creditors concentrated their questions on the “excluded assets” not on the auction block. If PropCo won the bid at $772 million, it would get the “excluded assets” at no extra cost.

If another bidder captured the 13 casinos, PropCo would pay $35 million for these “excluded assets.”

The “excluded assets” include a primary customer database, trademark rights, IT systems, furniture and the pattern rights for the single slot machine card now used in all casinos.

Friel said the Fertitta group tried to buy the customer database system but the deal fell through.

Attorneys for the creditors suggested these “excluded assets were worth more than $35 million, and one estimate was they may be worth $65 million.

The lawyers suggested several times that the whole company should be put on the auction block to see how much it would bring. Unsecured creditors including bondholders are owed $2.5 billion.