Another Cautionary Casino Tale

Lenders stop agreeing to debt revisions and extensions, so Station Casinos files for bankruptcy protection.

Robert Steyer
Robert Steyer
Jul 30, 2009 at 12:00AM

Less than 48 hours before Las Vegas Sands (NYSE:LVS) -- a casino operator with a battered balance sheet -- was due to reveal second-quarter results, Station Casinos, which has a shakier balance sheet, filed for bankruptcy reorganization. The company filed for Chapter 11 on Tuesday, saying its casino operations won't be affected.

Station is a prime example of why casino-related leveraged buyouts aren't the source of freedom or riches envisioned by executives or peddled by investment bankers. Another casino operator that went private via an LBO, Harrah's Entertainment, is also struggling with a heavy debt load.

Station Casinos executives and an affiliate of the Colony Capital investment firm took the company private in November 2007, and took on heavy debt. Lenders finally said "no dice" after having agreed to several extensions for debt-payment deadlines.

The path to Chapter 11
In the months leading up to the bankruptcy filing, Station failed to make interest payments on several sets of debt and fell out of compliance with financial covenants.

Station Casinos' parent company and several noncasino subsidiaries filed for Chapter 11. Station's individual casino operating subsidiaries weren't part of the filing.   

Most Station properties are in Las Vegas and Henderson, Nev., where gambling revenue continues to decline. For the January-March period, Station's revenue was $282.7 million, or 20% below the year-ago quarter. Long-term debt stood at $5.74 billion, while the stockholders' deficit was $705.3 million.

Let the guessing begin
Station's bankruptcy filing is bound to renew speculation about who might be coveting its assets. Earlier this year, Boyd Gaming (NYSE:BYD) made a nonbinding offer of $950 million for most of Station's assets, but Station rejected the advance.

The weak economy and high debt among many casino operators make speculation about deal-making anything but idle. MGM Mirage (NYSE:MGM) sold one property in March and it might sell others. Las Vegas Sands and Wynn Resorts (NASDAQ:WYNN) are contemplating initial public offerings on the Hong Kong Stock Exchange for their holdings in Macau.

Given the bankruptcies of some non-LBO companies like Herbst Gaming and Trump Entertainment, as well as the asset-selling strategies for somewhat healthier gambling companies, we could be entering another era of deal-making. Let's hope the prospective buyers don't make the same mistakes that got the potential sellers where they are today.

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