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Fertitta family to continue operating Station Casino

Posted on August 8th, 2010

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After more than year of speculation, bidding and counter-bidding by major players in the gaming industry, it looks like the Fertitta family, founders of Stations Casinos Inc., will continue to be in control of the troubled company after all. The Fertitta family themselves put to auction the casinos after filing for its bankruptcy in 2009. The Nevada judge handling the auction signed a decision stating that the bid made by the Fertitta-backed group is the only remaining qualified bid for a portion of Station, and thus has survived any competition.

Frank and Lorenzo Fertitta, the brothers who turned the company that their father founded into a private entity and amassed a great number of loans in the process, will see Station’s debt amounting to $5.9 billion erased. Hearings in the coming months will finalize their comeback. This decision comes as a concluding stage of a dramatic shift in the gaming industry’s usually positive outlook, when major entities such as Trump Entertainment in Atlantic City, N.J., Tropicana Entertainment of Atlantic City, Las Vegas and Fontainebleau Las Vegas LLC filed industry-shaking commercial casino bankruptcy cases as general economic conditions went for the worse last year.
As casino earnings started to nosedive, other casino companies, including Station, tried to inject more money in their companies by loading themselves with debt, which also inched them closer to bankruptcy themselves. Efforts to avoid going bankrupt were undertaken as debts were restructured by loan term extensions through payment of loan interest or using other financial tactics.

Despite their best efforts, some of these companies still carried the heavy burden of debt with the promise of recovery in casino revenues still far from being a reality. Thus, companies like Station were also forced to file bankruptcy, and analysts claim that there might be another series of bankruptcy cases unless a sudden upturn happens and gamers flock back to Las Vegas and Atlantic City. As for Station, a series of events plunged the company into further debt.

Station was part of a market that fell victim to the economic downturn. When economic conditions started to plummet, the timing couldn’t have been worse. By 2009, the company’s earnings decreased by 20% from when negotiations for the buyout started. By that time, Las Vegas unemployment figures already reached double figures—14 percent, quite high compared to the national average of 9.5 percent. As of press time, another major industry player Boyd Gaming, has reported a 7 percent decrease of its Las Vegas revenues from the same time last year.

When Station was brought up for auction, a number of promising opponents were at hand during the entire duration of the auction process, giving the Fertitta brothers, who are also the owners of the Ultimate Fighting Championship venture, a run for their debt-ridden casino, including their fiercest rivals, Boyd Gaming. Boyd Gaming, during the height of the bidding wars, offered $2.45 billion for the company. However, Station got the Nevada courts to approve a number of auction rules, including a decision that enabled the Fertitta brothers to have an equity stake and management power, despite whoever wins the auction. At the start of the auction, six parties submitted their initial bids. One, by one, they started dropping out until last week, in a decision that stated that it would be useless for them to continue their bid, Boyd Gaming withdrew its bid for Station.

With the new arrangement, the Fertitta brothers would have equity in a new company that would be the owner of 4 Station casinos, with the rest of the new company to be owned by lenders. A total of $160 million will be doled out by the Fertittas in exchange for 45 percent of the company, with $400 million worth of equity and $2 billion in debt. Property management will remain with the Fertittas and added cash for the company’s smaller stake will be provided by an investor that has been there from the start–Colony Capital.