Failed casino operator Station Casinos is to return to previous owners including Colony Capital and Fertitta Gaming after a federal bankruptcy judge ruled in favour of their $772 million stalking horse bid to rescue the business.
Colony led a consortium to purchase the casino operator for $5.4 billion in November 2007, assuming $3.4 billion of its debt in the process. However, Station Casinos filed for bankruptcy in July 2009 after failing to meet its loan obligations.
According to Associated Press Newswires, the Reno-based judge Gregg Zive, determined the consortium, which also includes Station Casinos’ primary lenders, could regain ownership of 11 of its casinos in Nevada.
It is the latest example of a private equity company choosing to buy back holdings in a troubled investment. Last month, Apollo Investment Corporation, an affiliate of Apollo Global Management, agreed the purchase of a 50 percent stake in Innkeepers USA Trust, a hotels real estate trust which owns more than 70 hotels in the US. Apollo purchased Innkeepers in 2007 but had already written the investment down by 99 percent, Reuters reported.
The approval of Colony and its consortium’s bid followed the withdrawal of a bid for the business from rival operator Boyd Gaming making the consortium proposal the only qualified bid. It means that Fertitta Gaming, run by Frank and Lorenzo Fertitta, will own 46 percent of the company with the remaining 54 percent owned by Colony and Station’s lenders.
The bid comprises reorganisation plans for Station Casinos which must be approved in late August. These plans are for the majority of its casinos, such as Red Rock Casino Resort & Spa, Palace Station and Sunset Station. They do not include two joint venture Casinos, the Green Valley Ranch and the Aliante Station casinos, which are going through separate restructuring processes.
Colony’s investment in Station Casinos was made through its Colony Investors VII and VIII funds. It committed $1.28 billion of equity to the investment which was combined with $300 million of mezzanine finance while Fertitta Gaming invested $902 million.
In June, Colony founder Tom Barrack labelled the investment as Colony’s “worst investment ever” owing to when it was made. He told Bloomberg Markets: “It you were to pick the hour, the minute that could have been the worst investment ever, it was.”