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Station Casinos files for Chapter 11

After much publicity over its debt-load, the Colony Capital-backed casino operator has filed for bankruptcy protection to help it restructure its debt load. The filing relates only to the parent company and not the casino properties. Colony said the decision was not 'taken lightly'.

Station Casinos has filed for Chapter 11 bankruptcy protection in a bid to restructure more than $5 billion of debt.

The Colony Capital-backed casino operator said in a regulatory filing the reorganisation related only to the parent company and did not affect its 18 casinos, which are separate entities owned by Station.

Colony said in a statement that the decision was “not taken lightly” but that the “sudden and unprecedented upheaval” in US real estate markets had had a “devastating effect on the gaming industry”, particularly in Las Vegas. “Not surprisingly,” the firm said, Station “was especially hard hit”.

Colony insisted it would maintain its “stewardship of [Station] throughout the [bankruptcy] process” and would look for “opportunities in the gaming sector as we manage through these challenging times”.

Station chief accounting officer Tom Friel told the Wall Street Journal today that after months of negotiations with bondholders no formal pact had been agreed. “We feel it's helpful to have the formal court process to resolve some of the issues. You've got a whole bunch of different constituencies who have a bunch of agendas on how they want the world to be. This will hopefully help us move closer to getting a deal done.”

Los Angeles-based Colony led a consortium of investors in the $5.4 billion acquisition of Station in 2007, including the assumption of $3.4 billion of debt. The private equity real estate firm invested $1.28 billion from its Colony Investors VII and VIII funds, on top of a $300 million mezzanine investment, for a 75.9 percent stake in the operating company.

The other investors included Paris-based private equity firm Eurazeo and Station founding family, the Fertitta family. The Fertitta family invested $902 million in the Station group, while Eurazeo invested €144.6 million for a 5.3 percent stake. In March, Eurazeo revealed it was taking a “100 percent depreciation” on the deal following a “crisis” in the Las Vegas casino sector.

According to Los Angeles City Employees' Retirement System fund performance documents obtained by PERE under Freedom of Information laws, Colony’s $4 billion Fund VIII returned -85 percent in the past year and -72.9 percent since inception.

In a publicy-released statement, Station chief executive officer Frank Fertitta said the firm’s 18 casinos continued to generate positive cash flow but the “global recession has severely impacted our [parent] company”.

He added: “The restructuring of our debt will provide us with the financial flexibility necessary to meet the challenges of the current economic environment. Equally important, it will provide the resources necessary for us to continue to invest in our properties, take advantage of opportunities as they arise.” Station were unavailable for comment at press time.

Station has been engaged in talks with bondholders, who reportedly control $2.3 billion of the company’s $5.7 billion in debt, since the start of the year. In February, the casino operator warned it was weighing filing for Chapter 11 if negotiations with creditors failed.

SEC filings said senior secured lenders had agreed to allow Station to borrow up to $150 million from its non-casino subsidiaries, subject to approval by bankruptcy court, to continue operations.