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Bondholder sues Colony-backed Station

Station Casinos’ proposed debt restructuring has met with anger from some bondholders. A lawsuit alleges the plan is 'ungentlemanly', favouring a limited number of senior note holders. Station said the lawsuit was 'without merit'.

A lawsuit has been filed against Station Casinos over its plan to restructure its debt load, which could also involve voluntary Chapter 11 bankruptcy protection.

The Colony Capital-backed casino operator revealed earlier this month that it was offering bondholders 10 cents to 50 cents on the dollar in secured notes and cash, in exchange for about $2.3 billion of existing bonds.

As part of the plan, Colony and Station’s other backers, including the Fertitta family which founded Station Casinos, would inject an extra $244 million of equity into the deal. If enough investors back the restructuring plan, Station, which owns and operates 18 casinos in the Las Vegas area, said it would start “voluntary” Chapter 11 proceedings.

However, bondholder S Blake Murchison, has filed a lawsuit against the proposed restructuring alleging Station’s backers “cherry-picked” who could take advantage of the bond offering.

Investors who could not take part in the new bond offering, the lawsuit claimed, were “left holding the short end of the stick and face the imminent threat that their investments in – and contracts with – Station Casinos will not be honoured during a liquidation process”.

Colony nor Station Casinos were available for comment at press time, however in a US Securities and Exchange Commission filing, Station said the lawsuit was “without merit”.

Station argued: “All holders of [Station’s] outstanding senior notes and senior subordinated notes, respectively, would receive the same consideration pursuant to the proposed plan of reorganization regardless of whether such holders were eligible to participate in the solicitation of votes for the plan and no old notes would remain outstanding following consummation of the proposed plan.”

S Blake Murchison also filed a similar lawsuit against the backers of Harrah’s Casinos, including TPG founder David Bonderman, in January.

In February, Station said it missed a $14 million interest payment due that month on its debt, warning its fourth quarter revenues had fallen by 19 percent, to $290 million in 2008 from $358 million in 2007.

As part of its restructuring plan, Station said it would “solicit” permission from eligible institutional holders to push ahead with the restructuring. If enough votes were won, Station would consider filing for Chapter 11 bankruptcy protection during which time bondholders would receive between 10 cents to 50 cents on the dollar in secured notes and cash.