November 21, 2009 - A bankruptcy judge Friday temporarily extended the exclusivity period for Station Casino to submit its own restructuring plan until he can hear arguments on modifying a key lease agreement that some creditors oppose.

The deadline would have been this month under Chapter 11 rules, which give debtors 120 days after filing to submit a plan. After 120 days, any interested party can submit a reorganization plan to the court.

Bankruptcy Judge Gregg Zive also rejected Boyd Gaming Corp.'s request to participate in Friday's hearing on appointing an examiner, because the request was made too late. He also questioned Boyd's standing in the case.

Boyd Gaming, which offered $950 million for some or all of Station's assets, revealed Friday that it has acquired approximately $2 million in senior unsecured bonds since March, the company's attorney said.

Zive delayed making a final decision on granting Station more time to file its reorganization plan so he can hear arguments Dec. 7 and Dec. 11. Those hearings will address a proposal by Station that would lower the $250 million in annual lease payments it is paying a subsidiary that controls four hotel-casinos.

A group of independent lenders, along with a group of unsecured creditors, contend the $250 million lease should be reworked or recharacterized as an unsecured claim in court.

As part of Station Casinos' 2007 buyout, the company agreed to lease four casinos -- Red Rock Resort, Sunset Station, Palace Station and Boulder Station -- for $250 million per year from a subsidiary holding $2.5 billion in debt collateralized against the properties. Before the bankruptcy filing, part of the $250 million payment was used to pay debt, with the excess cash returning to the parent company.

The bankruptcy filing prevented the excess cash from being returned to Station, spurring unsecured creditors and independent lenders to argue that the payments are shifting value from the parent company to the subsidiary.

The proposed agreement, which has not been reviewed by creditors, would reduce the monthly payment for three months beginning in December from $21.45 million to an estimated $13.8 million -- an amount equal to the four properties' cash flow, minus $1.6 million for capital expenditures.

The agreement was proposed after creditors informed Station in October that continued payments of the lease would not be approved under current cash collateral agreements.

That means Station will need to either refuse to pay when the next payment is due in December, or pay and go to court with the lenders. Failure to pay could cause the properties to be taken over by creditors.

Independent lenders who had been seeking an examiner to review the buyout and Station Casinos' rejection of Boyd's offer withdrew their request after Zive refused to let Boyd participate in the hearing.

Thomas Keller, a Los Angeles-based attorney representing Station, said the lenders had reached an agreement giving them a seat at the negotiating table.

As part of the agreement, Station will hold biweekly status meetings or conference calls with lenders, provide them with updates and financial reporting at the same time information is given to the lead lender. Kreller said Station Casinos will also forward information about any offer Boyd makes to the lenders.

Late Friday, Boyd Gaming officials said they were still interested in acquiring assets of Station Casinos and that they looked forward to the Dec. 11 hearing.

Contact reporter Arnold M. Knightly at [email protected] or 702-477-3893.

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