Colony-backed Station Casinos weighs Chapter 11

Colony Capital-backed Station Casinos is considering Chapter 11 bankruptcy protection as it fights against its debt load and declining revenues in the US gaming industry.

Station today said 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.

Station was taken private by Colony and the Fertitta family in a $5.4 billion deal in 2007, with the assumption of about $3.3 billion in debt.

Colony invested $1.28 billion from its Colony Investors VII and VIII funds on top of a $300 million mezzanine investment. The company’s founding family, the Fertitta family, also invested $902 million in the Station group. Listed French private equity firm Eurazeo invested $200 million in the Station group as part of a $1.27 billion co-investment vehicle, according to the firm’s website.

Station said it missed a $14 million interest payment due Wednesday on its debt, warning its fourth quarter revenues had fallen by 19 percent, to $290 million in 2008 from $358 million in 2007. The company reported operating losses of $2 million in the three months to December 2008, excluding “anticipated impairments”.

Frank Fertitta III, Station chairman and chief executive officer, said in a statement the US recession had adversely affected “Las Vegas in general and the casino business in particular”.
 
Station added that the restructuring plan was needed to “significantly reduce the outstanding principal amount of indebtedness and cash interest expense of [Station Casinos]”.

In December, Eurazeo said it had partially written down its $200 million investment in Station. However Eurazeo chairman, Patrick Sayer, said in a letter to investors that in the long term Station Casinos was “protected by its real estate assets”.