Station faces tough sell to bondholders

Feb 10, 2009 5:04 PM
Staff & Wire Reports |

Analyst cites ‘paltry offer’ in restructuring

The restructuring plan announced by Station Casinos last week could face a tough sell with bondholders, according to some Wall Street analysts.

KDP Investment Advisors analyst Barbara Cappaert said Station’s offer to bondholders was "fairly paltry," although she suggested accepting it might be a better option than forcing the company into bankruptcy.

Another analyst said the offer was a "good start," but didn’t ensure the proposed restructuring would proceed as planned.

"They (the bondholders) didn’t accept an exchange offer in December, so it would be surprising they would embrace an offer now," said one analyst who spoke on the condition of anonymity.

The exchange offer turned down by bondholders included Station buying back about $500 million in debt in exchange for about $2 billion in notes.

Last week’s offer, which is part of a restructuring plan, would give senior bondholders 40¢ on the dollar in new notes and 10¢ on the dollar in cash, while subordinate bondholders would receive 7¢ and 3¢, respectively.

The restructuring plan followed the company’s failure to make a $14.6 million bond payment on Feb. 2. A company normally has a 30-day grace period to "cure" the default by making the payment.

Because of the grace period, bondholders have until March 3 to consider Station’s offer. If they accept it, they will be issued a pair of 10 percent notes due 2014.

As part of the restructuring plan, Station would also file for bankruptcy under Chapter 11, and the owners of the company – the Fertitta family and Colony Capital – would contribute $244 million in cash to be used as operating capital.

Seeking voluntary Chapter 11 protection wouldn’t be a surprise for those in the financial markets.

"We were not surprised by this, given that the company failed to receive amendments to its bank agreement and failed to achieve a below par exchange with resistant bondholders," said KDP analyst Cappaert.

If the deal is accepted by bondholders, Station would file for Chapter 11 bankruptcy in March and emerge by this summer with less debt and more cash.

The Las Vegas-based casino operator has been hit hard by effects of the economic downturn since its $8.5 billion takeover by the Fertitta family and private equity firm Colony Capital 15 months ago.

The private equity buyout left the company with $5.4 billion in debt and, with the souring economy, Station as well as other operators have seen their revenue slide, making debt payments difficult.

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