Station Casinos Likely to File Ch. 11 by Mid-April

LAS VEGAS-Station Casinos Inc. plans to file for protection from creditors under Ch. 11 of the US Bankruptcy Code on or before April 15, 2009 if it cannot otherwise solve its debt problems, according to published reports citing a Monday filing in Nevada federal court and company sources. The locally headquartered operator of off-Strip casinos reportedly revealed the plans in response to a request for an injunction against a possible filing.

The news comes the same day the company revealed to the SEC that it elected not to make a scheduled $9.9 million interest payment due March 15, 2009 to holders of the company’s $300 million 65/8% Senior Subordinated Notes due 2018, and that the grace period with respect to the payment ends on April 14, 2009. Previously, the company elected not to make a scheduled $24.1 million interest payment that was due on March 1, 2009 to holders of the Company’s $700 million 67/8% Senior Subordinated Notes due 2016, and that are subsequent forbearance agreement restricts the related bondholders and senior lenders from exercising remedies before April 15, 2009.

In February, Station Casinos and some of its lenders offered up a prepackaged bankruptcy proposal that would pay investors 10- to 50 cents on the dollar in secured notes and cash in exchange for some $2.3 billion of existing bonds. Affiliates of the Fertitta family and Colony Capital have agreed to put up as much as $244 million in new capital to maintain their current interests in the company, according to Station Casinos. The deadline for bondholder to approve the deal is April 10.

Later that month, Boyd Gaming made a non-binding $950-million offer for several of the company’s casino properties, saying it “would present a superior recovery to the unsecured creditors of Station versus the current Exchange Offer.” On March 2, Station announced the forbearance agreement related to the 2016 subordinated notes and said it is in the best interests of the company and its stakeholders to proceed with the current restructuring plan rather than entertaining asset sales.

The court filing by Station Casinos was in response to a lawsuit filed by investor S. Blake Murchison, an individual bondholder who is challenging the company’s aforementioned debt swap proposal. Stations Casinos said in February that the lawsuit was without merit.

Station Casinos spokeswoman Lori Nelson did not immediately respond to a request for comment Wednesday but has said publicly that the filing is one of three possible scenarios, the others being the prepackaged bankruptcy if it is approved by bondholders or additional extensions from its lenders.

Las Vegas has been hit hard by the economic downturn. Visitation and gambling are way down, making it hard for casino companies to generate the cash flow necessary to cover their debt loads. Layoffs, project delays and cancellations, stock offerings, asset sales and forbearance agreements have been used to increase liquidity and stave off defaults.

Earlier this week, Harrah’s Entertainment Inc., loaded down with $24.5 billion in debt, said it could not guarantee it will generate sufficient cash from operations, or be able to secure additional loans, to meet its debt payments in 2009; Wynn Resorts priced its second share offering in four months, and; MGM, with more than $13 billion in debt, cut a deal with lenders that gives it 60 more days to wriggle out of trouble, most likely by selling off more than just Treasure Island. In addition, Herbst Gaming is scheduled to file its prepackaged bankruptcy on March 23, and Tropicana Entertainment filed Ch. 11 bankruptcy in May 2008.