"Not only is it expensive and burdensome to the Debtors and their estates, but it is also completely duplicative of…inquiries and investigations already commenced" by the Official Committee of Unsecured Creditors," Station's attorneys state in their objection, adding that its management decisions are already monitored by the court. The objection goes on to question the motives of the minority lenders, saying the motion "may be" an abuse of process due to the following facts:

• The Independent Lenders have been engaged in an ongoing dispute with Deutsche Bank about positions taken by Deutsche Bank on matters raised in the Examiner Motion.
• The Independent Lenders have liens on estate property that are believed to exceed the value of their claims against the Debtors. Therefore, the Independent Lenders stand to gain nothing from the appointment of an examiner and the investigation and litigation of the issues raised in the Motion.
• The Independent Lenders chose to file the Motion just a little over a month after these cases were filed and just 16 days after the Committee was appointed.
• The Independent Lenders filed the Examiner Motion after they became aware that the Committee was in fact pursuing the matters listed in their motion.

The minority lenders allege that the "stacked" corporate structure created to take the company private in 2007 is no longer viable because the common management cannot act in the best interest of the OpCo, PropCo and LandCo entities at the same time when each is bankrupt and has separate debt obligations. Among several other things, the minority lenders allege that the situation has resulted in the company continuing to pay an over-market rent and refusing a legitimate purchase offer. In its objection, Station denies any conflict of interest and says it's studying the issues the minority lenders have raised.

The minority lenders says Deutsche Bank, the main lender, is in the same conflicted position as the common management because Deutsche Bank is not only the agent for a $900-million secured "OpCo" parent company loan agreement that includes the minority lenders but also a major lender for both the separate $2.475 billion "PropCo" loan covering four of Station's 18 casino properties and a separate $250 million "LandCo" loan.

"When the debtors were solvent and meeting all of their financial obligations, it was not problematic for them to be run by common management and to engage in intercompany transfers and transactions that moved value from one stack to another. With each stack now deep within the zone of insolvency [and having been there for some time], there can be no dispute that the fiduciary duties owed by the Station Groups' directors and officers have expanded to include duties owed to creditors in each of the three stacks. The problem is that while management is the same for all three stacks the creditors are not. Consequently, such [intercompany transfers of value] have the potential to unfairly, and improperly, shift value from one stack to another, and thereby benefit one stack of creditors at the expense of another."

As currently organized, the OpCo [Station Casinos Inc.] is the indirect 100% owner of the PropCo and LandCo. Detailing one of its concerns, the minority lenders say that as part of the transaction that took the company private in 2007, OpCo or affiliates thereof transferred to PropCo the Boulder Station, Palace Station, Red Rock and Sunset Station Casinos, and PropCo then leased the properties back to OpCo for an initial term of 15 years at $250 million per year, and OpCo subleased the properties to non-debtor operating subsidiaries.

The minority lenders argue in their motion for an independent examiner that as a result of the different creditors in the different stacks, if a reduction in rent were negotiated the OpCo creditors would benefit significantly, but only at the expense of the PropCo lenders, of which Deutsche Bank is the largest.

"Since OpCo and PropCo have common management, when considering what to do about the master lease, management is presented with a Sophie's Choice: Which child should suffer?" state the minority lenders in their motion. "Management's answer, predictably, is "neither." And this is exactly what we have seen so far; SCI and OpCo continue to pay the over-market rent at a rate of almost $21 million per month…while management makes no apparent effort to reject or renegotiate the lease (with itself).

"The problem here is that…every time SCI pays the over-market rent to PropCo, in effect it is making a "gift" – in the amount of the excess rent--to the insolvent PropCo's creditors, at the expense of OpCo's creditors. And since SCI is an insolvent debtor, it is in no position to be making gifts to anyone."

Minority lenders also cite management's continued rejection of Boyd Gaming's expressions of interest in acquiring all or part of the company despite its original argument for the rejection--that a pre-packaged bankruptcy would be better--now being a moot point. In addition to the lease arrangement and the denial of the purchase offer, here's what the minority lenders want investigated:

• Whether OpCo should be paying current interest on the LandCo. Loan – a loan secured by undeveloped land in which they allege there is no equity – for the benefit of LandCo's lenders, which includes the main lender, Deutsche Bank, which is also the agent for the OpCo secured lenders, and which may be using its role in that position to cause OpCo to keep paying interest on the "underwater" land loan;
• Whether [ and to what extent] OpCo should be funding the "massive" capital expenditures and development costs provided for in its budget;
• Whether OpCo should be paying professionals engaged by members of the OpCo board of directors, particularly representatives of "out-of-money" equity holders, whose sole interest may be as potential litigation defendants;
• Whether OpCo may have claims of breach of fiduciary duty against these same directors whose professionals OpCo is paying, and who are acting to benefit the PropCo at the expense of the OpCo, for trying to use their control of OpCo to rebuff acquisition inquiries for the OpCo assets that excluded the PropCo assets, but might beneficial to OpCo creditors.

A hearing on the motion is scheduled for later this week, though Station has asked that it have an opportunity to investigate the issues raised in the motion and conduct discovery to "ascertain the true motives" of the minority lenders. "The Court should deny the relief requested in the Motion," concludes Station's objection. "To the extent that the Court determines that the appointment of an examiner is warranted, the Committee respectfully urges that the Court narrowly tailor the scope of the investigation to be performed by an examiner to avoid unnecessary overlap with the ongoing Committee efforts."