The Work

June 20, 2011 5:25 PM

After Two Rocky Years, Station Casinos Exits Bankruptcy

Posted by Julie Triedman

In what lead debtor's counsel Milbank, Tweed, Hadley & McCloy called the biggest-ever in-court restructuring of a gaming company, casino and resort operator Station Casinos announced Friday that it has completed its reorganization.

The announcement, which comes nearly two years after Station filed for bankruptcy court protection from lenders holding some $6.5 billion in debt, puts the Summerlin, Nev.–based company's 18 casinos back under the Station Casinos umbrella--and back in the hands of the Fertitta family, specifically brothers Frank Fertitta III and Lorenzo Fertitta. (Station Casinos was founded 35 years ago by Frank Fertitta, Jr.)

The Fertitta brothers have invested nearly $200 million in the reassembled company, and now own 45 percent of its outstanding shares. Frank III will serve as CEO of the new Station Casinos, which exits bankruptcy with $4 billion less in debt and, according to the company, much improved prospects for the future. Lorenzo will take the title of vice-chair.

The other new equity owners are also Station insiders. They include the company's main secured lenders, Deutsche Bank AG, which now holds a 25 percent stake, and JPMorgan Chase & Co. with a 15 percent stake, according to Bloomberg. Former unsecured bondholders hold an additional 15 percent, according to lawyers on the deal.

Station Casinos was flying high when the Fertittas and other investors took the company private, loading it with $5.5 billion in debt in a leveraged deal in 2007. The deal helped push the two Fertitta brothers onto Forbes's annual billionaires list in 2008. 

By then, though, the recession had already begun to hit the gaming industry hard, and Station was soon unable to make debt payments or to refinance. It filed for Chapter 11 protection in Las Vegas bankruptcy court in July 2009. 

The bankruptcy quickly turned into what termed a "bare-knuckle brawl." Complaining that the original reorganization plan was an inside job that unfairly favored existing management and secured lenders, a rival bidder tried to block a deal. Unsecured creditors, meanwhile, filed a fraudulent conveyance suit against Station Casinos. The rival bidder ultimately backed out of a scheduled auction last December and bondholders dropped their suit in consenting to the reorganization plan last July.

Milbank has served as lead debtor's counsel from the start, with corporate partner Ken Baronsky and financial restructuring partner Paul Aronzon leading the firm's team on the complex matter. Baronsky has been Station Casinos's main outside corporate counsel since 1991, he says. He helped take the company public in 1993 and private again in 2007. He expects to continue as outside adviser to the new entity.

Other Milbank attorneys assisting included restructuring partner Thomas Kreller; corporate partners Brett Goldblatt, Deborah Ruosch, and Adam Moses, and counsel David Isenberg; real estate/hospitality partners Peter Benudiz and David Lamb; tax partner Russell Kestenbaum; IP partner Mark Scarsi; and litigation partners Linda Dakin-Grimm and Dan Perry. 

Milbank and Fried, Frank, Harris, Shriver & Jacobson, lead creditors committee counsel, billed a collective $18 million in fees during the first year the the company spent in Chapter 11, The Am Law Daily previously reported. During the most recent quarter ended March 31, Milbank billed $5.4 million for 7,107 hours of work. 

Those fees were just the tip of the iceberg in terms of billables on the bankruptcy. The Am Law Daily has previously noted that the matter helped feed the coffers of more than a dozen major law firms with large bankruptcy practices. The company's independent directors alone tapped six firms.

It was hardly a surprise that so many lawyers were called in. As we described here, beyond the dispute with the potential rival bidder, the reorganization's success required due diligence and negotiations with distinct though often overlapping creditors of 18 operating Station subsidiaries. Further complicating matters: Some of those units were structured as wholly owned subsidiaries, while others were conceived as joint ventures. 

U.S. bankruptcy court judge Gregg Zive approved Station's reorganization plan last July. But in order to reach the finish line and exit bankruptcy, lawyers at Milbank first had to take each of the subsidiaries--the "trophy" assets that included mostly operating casinos--into and out of bankruptcy.

Milbank held off on filing the subsidiaries' bankruptcies until last month in order to buy time to line up support for each plan. Almost all the subsidiaries entered and exited via prepackaged bankruptcies in a few weeks in May. The last two subsidiary bankruptcies, which involved more complicated debt scenarios, were successfully resolved earlier this month. Milbank's Baronsky says that wrapping the entire restructuring up  "was like unscrambling an egg." 

And did the Milbank lawyers ever take a break during their Vegas trips to try a little gambling? Just once, says Aronzon. That was enough--he lost $50 within five minutes. "It's hard," he says, "to be a gambler in this business."


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