Objections to Reorganization Plan by Station Employees Committee

8/9/2019 Objections to Reorganization Plan by Station Employees Committee

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RICHARD G. McCRACKEN, Nevada SBN 2748McCRACKEN, STEMERMAN & HOLSBERRY

1630 S. Commerce Street

Las Vegas, NV 89102Telephone: (702) 386-5107

FAX: (702) 386-9848E-Mail: [email protected]

Attorneys for Party-in-Interest

INFORMAL COMMITTEE OF STATION EMPLOYEES

UNITED STATES BANKRUPTCY COURT

DISTRICT OF NEVADA

In:STATION CASINOS, INC.

Affects this Debtor

Affects all Debtors

Affects Northern NV Acquisitions, LLC

Affects Reno Land Holdings, LLC

Affects River Central, LLC

Affects Tropicana Station, LLC

Affects FCP Holding, Inc.

Affects FCP Voteco, LLC

Affects Fertitta Partners LLC

Affects FCP MezzCo Parent, LLC

Affects FCP MezzCo Parent Sub, LLCAffects FCP MezzCo Borrower VII, LLC

Affects FCP MezzCo Borrower VI, LLC

Affects FCP MezzCo Borrower V, LLC

Affects FCP MezzCo Borrower IV, LLC

Affects FCP MezzCo Borrower III, LLC

Affects FCP MezzCo Borrower II, LLC

Affects FCP MezzCo Borrower I, LLC

Affects FCP Propco, LLC

Chapter 11

Case No. BK-09-52477

Jointly Administered

BK 09-52470 through BK 09-52487

OBJECTIONS OF INFORMAL

COMMITTEE OF STATION EMPLOYEESTO THE JOINT PLAN OF

REORGANIZATION

DATE: May 5, 2010TIME: 10:00 a.m.

PLACE: 300 Booth Street

Reno, Nevada 89509

Case 09-52477-gwz Doc 1240 Entered 04/21/10 15:41:00 Page 1 of 17

0952477100421000000000007


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TABLE OF CONTENTS

I. INTRODUCTION...............................................................................................................1

II. THE JOINT PLAN FAILS TO INCLUDE WORKFORCERETENTION REQUIREMENTS.......................................................................................1

III. THE DEBTOR IS ENGAGED IN AN ILLEGAL ANTIUNIONCAMPAIGN THAT WILL JEOPARDIZE A SUCCESSFULREORGANIZATION..........................................................................................................6

IV. THE JOINT PLAN IS NOT FEASIBLE BECAUSE NEW PROPCO ISNOT FEASIBLE AS PROPOSED....................................................................................12

V. CONCLUSION..................................................................................................................15



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I.

INTRODUCTION

The Informal Committee of Station Employees (the Employees Committee) objects to

the Joint Plan of Reorganization proposed by Station Casinos, Inc. (hereinafter, Station or the

Debtor). The Committee is comprised of ten employees of ten Station casinos throughout Las

Vegas. The Committee was formed with the goal of representing the interests of hourly

employees in this case. There are thousands of hourly employees employed at 18 Station casinos

throughout Las Vegas. While hourly employees of Station Casinos are employed by non-debtor

subsidiaries of the Debtors, hourly employees have an interest in the Debtors successful

reorganization because their jobs depend upon it. Unlike management-level employees, hourly

employees often do not have the resources to support themselves in the event of layoff.

No one who has appeared before in this case has taken the interests of these employees

into account despite the great contributions they have made and continue to make to the survival

and future success of the Station hotel-casinos. The Joint Plan provides no protection for them.

It does not require that they be retained in any of the contemplated transactions. The Employees

Committee therefore urges the Court not to approve the Joint Plan unless retention of existing

employees is part of it. Additionally, the Committee requests the Court to order the Debtor to

stop its illegal, anti-union campaign. The legal and business consequences of the campaign will

jeopardize the successful reorganization of the Debtor in ways the Committee will demonstrate.

Finally, the Committee objects to the Propco transaction because it will result in a company so

highly leveraged that a return trip to this Court is all too likely, with the attendant cuts and

uncertainties for hourly employees.

II.

THE JOINT PLAN FAILS TO INCLUDE WORKFORCE

RETENTION REQUIREMENTS

The Debtors hastily-drafted Joint Plan gives scant attention to employee-related issues,

specifically with respect to workforce retention, even as it proposes sweeping ownership changes



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at the Debtors operating subsidiaries. This omission has generated a great deal of anxiety among

Station Casinos employees, many of whom speak regularly to members of the Employees

Committee. Station employees are naturally worried about whether they will get to keep their

jobs and benefits if the casino-hotels they work for come under new ownership, as they would if

the Joint Plan is approved. Such anxiety can only lead to low morale and lack of motivation

among the employees, thus affecting negatively the efficiency and value of the operating

properties in the highly competitive Las Vegas Locals market. As the Debtors have often

emphasized throughout the restructuring process, it is important to maintain the dedication,

confidence, and cooperation of the Companys employees.1 Dedicated and confident employees

are certainly crucial to ensuring a high level of customer satisfaction and loyalty by providing

attentive customer service in a friendly, casual atmosphere, which is a key component of the

Companys business strategy.2 The proposed Joint Plan thus fails critically in this regard by not

offering meaningful employment protection and reassurances to Station employees.

On the Propco side, the jobs of all existing employees at the Propco properties are

explicitly put at risk. This is seen from reading the Second MLCA Motion together with the Joint

Plan and Disclosure Statement. The four Propco properties will be owned by a New Propco. The

Joint Plan states that, after the plan becomes effective, New Propco will provide its employees

with pay increases, restore the 401(k) match, and other steps so that they will enjoy

competitive wages and benefits.3 However, it is silent as to whether New Propco will retain the

approximately 6,300 current employees at the four Propco properties so that they may enjoy the

promised improvements as well as keeping their seniority, accrued vacation, and existing health

1 Omnibus Declaration of Thomas M. Friel in Support of the Debtors Chapter 11 Petitions andFirst Day Motions, Docket No. 19 in Case-09-52470, filed 7/28/09, p. 84.

2 Kline Declaration, 4, Ex. A (Station Casinos, Inc. 10K, 3/3/10, p. 4).

3 The Joint Plan, p. 67, Doc 1131.



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insurance and other benefits.4 Unfortunately, from the Second MLCA Motion that Propco/New

Propco will not be required to keep existing employees at the four properties when the plan

becomes effective. According to the Second MLCA Motion, it is envisioned that, as the plan

become effective, the Master Lease between Station and Propco will be rejected and Propco/New

Propco will assume ownership and operations of the Propco properties. It is also envisioned that,

when this happens, Propco/New Propco may not retain existing employees and merely may

make employment offers to them and set up its own employee benefit plans. This was

actually made worse in Notice of Submission of Revised Second Amended and Restated Master

Lease, Doc 1215, filed April 19, 2010. Now, Item 11 in Annex 1 (Doc. 1215-1) provides only

that Propco may make employment offers; previously, it was will.5

This means that the

Joint Plan, as currently conceived by the Debtors, could lead to the mass termination of all

employees who currently work at the Propco properties.

With respect to the Opco assets, the Joint Plan also offers no concrete provisions to

protect existing employees. The assets for sale include thirteen casinos that employ

approximately 5,300 employees.6 The Bidding Procedures Motion includes a detailed description

of the Debtors' proposal for how to conduct the sale and likely auction of these properties. There

is only one mention of workforce retention: a Qualified Bid must be one that contains any

proposed measures associated with the continued employment of the employees, among other

4 These four Casinos currently generate approximately 60% of the EBITDA of the Debtors as a

whole. They also employ approximately 6,300 people, nearly half of the Debtors totalemployees. Statement of Position of Deutsche Bank Entities, 8/21/09, Doc 153, p. 2.

5 See "11. Propco Employees" on p.6 of Annex 1 To Second Amended Master LeaseCompromise Agreement, filed with the Second MLCA Motion, Doc 1179 .

6 According to the Disclosure Statement, as of January 31, 2010, Station Casinos hadapproximately 11,689 employees overall, which means there were about 5,300 other than the6,300 at the Propco properties.



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requirements.7 This vague and ineffectual formulation would seem to allow anything from a

simple promise to contemplate the possibility of retaining existing employees to a strong

contractual requirement that all existing employees must be able to keep their jobs after the

change in ownership. But even this vague language disappears in the next section on Evaluation

of Competing Bids, where workforce retention is not explicitly identified among the factors to

be considered for evaluating qualified bids.8

The terms of the proposed Stalking Horse bid, to

the extent that they are revealed in the Opco Support Agreement (Restructuring Support

Agreement, Doc 1219-1, filed as Exhibit 1 to the Debtors motion for approval to enter into the

Agreement, Doc 1219, filed April 19, 2010) give no reassurance to Station employees of the

Opco Assets. Schedule 3 (Doc 1219-3) provides that the purchasers of these hotel-casinos may

begin making employment offers to employees of these properties below the general manager

level when their bids are confirmed. The purchasers are not required to retain the existing

workers or even to make employment offers to any of them. Despite the Debtors pious claim to

want a plan that preserves jobs (Motion for Approval, paragraph 19), and intimation that its

present proposals would do so, in fact nothing at all has been done to protect the futures of the

thousands of employees of the Opco properties.9

Therefore, for all the current Station employees, on either the Propco or Opco side, the

Joint Plan offers no job security even as it proposes sweeping ownership changes to all Stations

casinos. This is hardly a proposal to maintain morale and inspire confidence among Stations

more than 11,000 employees. Furthermore, if the specter of mass terminations contemplated by

7 See p. 10 of Bidding Procedures In Connection With Debtors Sale Of All Or Substantially

All Of The Assets Of Station Casinos Inc. And Certain Of Its Debtor And Non-Debtor OpcoSubsidiaries, attached as Exhibit 1 to the Bidding Procedures Motion, Doc 1175.

8Id. at p. 11.

9 There is a reference to New Opco retaining property specific employees in the Term Sheetfor the Opco Support Agreement, Doc 1219-1, p. 48. This is in the Section titled IP HoldCo,IT, Employees and Transition Services and may be about just IT employees. If it is intended tocover all operating employees, that commitment needs to be made much clearer.



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Second MLCA Motion does lead to the unemployment of hundreds and/or the loss of health

insurance for hundreds of rehired workers, the cumulative effect of such personal hardships

would be devastating to an already economically depressed Las Vegas as hundreds might have to

seek help from the regions already taxed social service agencies and potentially many more

personal bankruptcy filings.

The Debtors failure to include meaningful workforce retention provisions in the Joint

Plan is particularly troubling since Station management is well aware of the fact in an ownership

change, a new employer might terminate all employees and require them to re-apply for jobs.

This is exactly what Station did to 900 employees at the Santa Fe casino and 1,100 employees at

the Fiesta casino when it acquired those two properties in 2000. At the time, the companys then-

General Counsel stated that When we entered into the agreement (to buy the Fiesta), we said we

were buying the assets. Employees are not assets.10 However, the Employees Committee

believes that employees are valuable assets to the casinos they work forand that they have in

fact been critical to creating the value that is being disposed in this caseand must be

adequately protected as ownership changes take place.

To protect its existing employees, Station should make workforce retention at all its

existing operating subsidiaries a central feature of its plan of reorganization, regardless of what

new ownership is proposed for them. There is precedent for making workforce retention a key

consideration in the Chapter 11 reorganization of a gaming company in Nevada. In the Chapter

11 case of Aladdin Gaming LLC (Case No. 01-20141), the court required worker retention as a

condition for consideration of any bid.11

Also, Station should know that it is possible to protect

existing employees at its properties by ensuring workforce retention as part of any asset purchase

agreement. In 2000, although it terminated all employees at the Santa Fe and Fiesta casinos to

10 Kline Declaration, 5, Ex. B (Fiesta Layoffs: Station calls layoff notices necessary, LasVegas Review-Journal, 9/9/2000).

11 See Kline Declaration, 3, and p. 16 of the Agreed To Amended Order Re Motion For Order(I) Approving Sales Protections To Opbiz, L.L.C[Docket No. 1535], Case No. 01-20141.



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Stationize them, Station simply retained all employees at the Reserve casino it had also just

bought because the purchase agreement contained such a provision.12

III.

THE DEBTOR IS ENGAGED IN AN ILLEGAL ANTIUNION CAMPAIGN THAT WILL

JEOPARDIZE A SUCCESSFUL REORGANIZATION

The Local Joint Executive Board of Las Vegas, a joint agency of Culinary Workers

Union Local 226 and Bartenders Union Local 165 (hereinafter the Union), represents the

housekeeping, janitorial, food service, front services (bell and door) and slot change employees

in hotel-casinos in Nevada. It represents the employees in these classifications in all of the hotel-

casinos on the Las Vegas Strip except the Venetian/Palazzo and Imperial Palace, and in all

except one of the downtown Las Vegas hotel-casinos. It is known for its ingenuity and

perseverance in organizing. It conducted the longest successful strike in history against the

Frontier Hotel-Casino from 1991 to 1998. It organized the MGM Grand Hotel in 1996 despite

what began as the intense opposition of the hotels management. Declaration of Kevin Kline,

filed herewith, 2. See MGM Grand Hotel, Inc., 329 NLRB 464 (1999).

In February, 2010, the Union announced the formation of an organizing committee of

employees of the Debtor. A large number of Station employees who are members of the

organizing committee signed a petition demanding that Station enter into an agreement that

would allow them to organize without management interference and intimidation and to honor

their choice if a majority signed cards authorizing the Union to be their representative. Kline

Declaration, 7, Exhibit D. They have begun to demonstrate publicly in support of this petition.

Seewww.workerstation.org .

Instead of honoring this request, Station has engaged in a typical anti-union campaign of

the worst sort. It has committed hundreds of unfair labor practices, including firings, threats,

12 Kline Declaration, 6, Ex. C (Casino Takeover: Fiesta buyout remains on track,Las VegasReview-Journal, 11/17/2000).



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bribery, surveillance, retaliatory reductions in work and changes in hours and retaliatory

discipline. Copies of the unfair labor practice charges the Union has filed are attached as

collective Exhibit E to the Kline Declaration, 8. These charges are under investigation. The

Regional Director of Region 28 of the National Labor Relations Board (NLRB), who is

responsible for conducting the investigation, has announced his decision sua sponte to consider

seeking injunctive relief under Section 10(j) of the National Labor Relations Act (NLRA), 29

U.S.C. 160(j), to remedy Stations illegal conduct so far and to prevent further violations. Kline

Declaration 9, Exhibit F. Station has told its employees that far from respecting their right to

organize and engage in collective bargaining, it will make this road long, hard and futile. Kline

Declaration , 10, Exhibit G.

The consequences for Stations current course of action are several and all negative for

the estate and for the prospects for successful reorganization. First and most obviously, the

Debtor is incurring yet more large legal bills in a case that has already drawn notoriety because

of the size of professional fees. The Debtor has hired DLA Piper to advise it in this antiunion

campaign. DLA Piper will also undoubtedly attempt to defend the Debtor in the unfair labor

practice cases. The Court can expect to receive some requests to approve large fees to this firm

for its work in helping to repress the Debtors employees.

The same law firm advised Pinnacle Entertainment and then defended it against unfair

labor practices at Lumire Place Casino in St. Louis. Last week, in the face of an NLRB trial and

threat of injunction proceedings under Section 10(j) of the NLRA, Pinnacle caved and entered

into a far-reaching settlement agreement with the government. Kline Declaration, 11, Exhibit

H. It includes reinstatement and back pay to illegally terminated employees, wage increases for

all eligible bargaining unit employees, back pay for all bargaining unit employees suspended or

terminated as a result of changes in time clock procedures, back pay to cocktail servers who lost

tip income as a result of changes in job bidding procedures, reimbursement to all bargaining unit

employees for the additional costs of a new health benefits plan instituted by the employer, a

401(k) match to replace the one the employer stopped, back pay to all employees suspended or



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terminated as a result of new policies in the employers handbook, rescission of many policies

that have been adopted unilaterally and rescission of terminations and other discipline given to

bargaining unit employees for violating the unilaterally-adopted policies. So, yes, it can happen

and thats where Station Casinos is headed under the same legal guidance.

As shown above, there is a real risk that the Debtor may face NLRA Section 10(j)

injunction proceedings brought against it by the National Labor Relations Board. These

proceedings are not subject to the automatic stay. 11 U.S.C. 362(a)(4);NLRB v. Continental

Hagen Corp., 932 F.2d 828 (9th Cir. 1991);NLRB v. Twin Cities Electric, 907 F.2d 108 (9th Cir.

1990). The federal court in a Section 10(j) proceeding may not only restrain further violations of

the NLRA but remedy ones that have already taken place. This includes reinstating fired

employees. See, e.g., Pye v. Excel Case Ready, 238 F.3d 69, 57 (1st Cir. 2001) (upholding 10(j)

injunction requiring reinstatement of discharged employees); Taylor v. Circo Resorts, Inc., 458

F.Supp. 152, 155 (D. Nev. 1978) (same). The result of an injunction against further violations of

the law could easily place the Debtor in a worse position than if it had never embarked on its

illegal campaign. All actions it takes, including changes in operating procedures, changes in

wages and benefits and personnel actions will be scrutinized against the injunction in

proceedings that will take place in United States District Court.

In addition, the number and severity of Stations unfair labor practices make a bargaining

order underNLRB v. Gissel Packing Co., 395 U.S. 575 (1969), a realistic possibility. In this

case, the United States Supreme approved the National Labor Relations Board doctrine that

imposes a bargaining obligation on an employer without an election where the employer has

engaged in serious unfair labor practices that make a fair election unlikely. Id. at 613-615. The

unfair labor practices committed by Station in opposing the Unions campaign are like those that

have led to Gissel bargaining orders in other cases. See, e.g., Q-1 Motor Express, 308 NLRB

1267 (1992), enfd25 F.3d 473 (7th Cir. 1994) (threats);Douglas Food Corp., 330 NLRB 821

(2000) (promised benefits);Horizon Air Svcs., 272 NLRB 243 (1984) enfd761 F.2d 22 (1st Cir.

1985) (interrogation and surveillance);NLRB v. Tischler, 615 F.2d 509 (9th Cir. 1980) (work



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rules that interfere with union activity);Appletree Chevrolet, 237 NLRB 867 (1978)

(terminations). An important aspect ofGissel bargaining order is that it is retrospective. That is,

the bargaining obligation attaches not when the order issues but when the Union made its

demand for recognition. Trading Port, Inc., 219 NLRB 298, 301 (1975). Therefore, all changes

in wages, hours, and other terms and conditions of employment that occur after that much-earlier

date are illegal. California Gas Transport, Inc., 347 NLRB 1314, 1314 (2006);Regional Home

Care, Inc., 329 NLRB 85, 101 (1999); Schaumburg Hyundai, Inc., 318 NLRB 449, 458-59

(1995); St. Agnes Medical Ctr., 304 NLRB 146, 147-48 (1991). The remedy for such unilateral

changes is that they must be reversed and employees made whole for any losses suffered as a

result. See, e.g., Atlas Refinery, Inc., 354 NLRB No. 120, at slip op. 1 (2010);Massey Energy

Co., 354 NLRB No. 83, at slip op. 4, 44-45 (2009). The range of subjects about which an

employer must first bargain with the Union prior to implementation is very extensive, ranging

from changes in work rules to changing benefit plans. See, e.g., Beverly Health & Rehab. Svcs.,

Inc. v. NLRB, 317 F.3d 316 (D.C. Cir. 2003) (changes to HMO coverage held illegal);Alwin

Mfg. Co. v. NLRB, 192 F.3d 133 (D.C. Cir. 1999) (changes in production standard and vacation

scheduling policy found illegal). Indeed, the duty to bargain covers virtually the entire

employment relationship. If Stations conduct results in a Gissel bargaining order in favor of the

Union, and it meanwhile makes changes in terms and conditions of employment (something that

is virtually certain to happen in the course of a reorganization), its liability and the operational

changes necessary to restore the status quo will be massive and will threaten to prevent a

successful reorganization.

A mass termination of Station employees seems possible. Under the Joint Plan, New

Propco will not retain existing employees but merely may make employment offers to them.

Furthermore, retention of existing employees is not a factor for the evaluation of competing bids

for the Opco Properties. When the labor-law consequences of such potential terminations are

taken into account, there may be massive liability for the Debtor and also for potential buyers of

the operating Opco properties. These transactions might be used as opportunities to weed out



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union supporters. This is not an irrational fear given Stations conduct to date, including its

brazen advertising to its employees that it will prevent them from exercising their protected right

to collective bargaining for as long as possible. Kline Declaration, Exhibit G. The will to

discriminate is certainly there. Of course, discrimination on the basis of union support is plainly

illegal and if it is determined to have occurred, will result in back pay liability for all of the

employees treated in this manner. 29 U.S.C. 160(c). Moreover, and perhaps more sweepingly,

if the Gissel bargaining duty has attached to Station by the time it makes these transactions,

Station will be obligated to at least bargain with the Union about the transactions effects on

employees. Failing to do so would violate the bargaining duty. First National Maintenance

Corp. v. NLRB, 452 U.S. 666, 681 (1981); Gannett Co., Inc., 333 NLRB 355 (2001); Champion

International Corporation,339 NLRB 672 (2003); Willamette Tug & Barge Co., 300 NLRB 282

(1990);Los Angeles Soap Co., 300 NLRB 289, 295 (1990).

The contemplated transactions involving both the Propco and Opco properties will not

take either Station or the buyers off the hook. If New Propco or the buyers of the Opco properties

hire existing employees in the bargaining unit as the majority of their workforce in the same unit,

then they will become legal successors under federal labor law for purposes of the duty to

bargain and to remedy unfair labor practices that occurred before the sale. William J. Burns

International Detective Agency v. NLRB, 406 U.S. 272 (1972); Golden State Bottling v. NLRB,

414 U.S. 168 (1973). Even if they discriminate and thereby avoid hiring existing employees as a

majority in the new workforce, they are still treated as constructive successors, as they would

have been had they not engaged in discrimination.Loves Barbeque Restaurant No. 62, 245

NLRB 78, 82 (1979), enfd in relevant part640 F.2d 1094 (9th Cir. 1981); U.S. Marine Corp.,

293 NLRB 669 (1989), enfd944 F.2d 1305, 1319-24 (7th Cir. 1991) (en banc), cert. denied, 503

U.S. 936 (1992). Successors obligations may be enforced through injunctive relief under

Section 10(j). Scott v. El Farra Enterprises. Inc., 863 F.2d 670 (9th Cir. 1988); Bloedorn v.

Francisco Foods, Inc. , 276 F.3d 270 (7th Cir. 2001);Hoffman v. Inn Credible Caterers, Ltd.,



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247 F.3d 360 (2d Cir. 2001); Frye v. Specialty Envelope, Inc., 10 F.3d 1221 (6th Cir. 1993);

Asseo v. Centro Medico del Turabo, 900 F.2d 445 (1st Cir. 1990).

There may be other economic consequences that are equally or even more severe. Station

Casinos depend heavily on local customers, many of whom are members of the Union. In fact,

Station has attributed some of its current financial malaise to the fact that Union members have

foregone wage increases in light of the financial problems in the gaming industry in Las Vegas.

Kline Declaration, 12, Exhibit I, p. 2. There has been some picketing of the casinos in this

chain, but the Union has not declared a boycott and asked its members to stop patronizing

Station Casinos. If Station were to terminate employees as part of the transactions contemplated

by the Joint Plan of Reorganization, this could be expected to change, with disastrous

consequences for these hotel-casinos. Judge Jones avoided this possibility in the Aladdin

Gaming case by requiring that all bidders for the hotel-casino include as part of their bid that

they would retain their existing employees. Kline Declaration, 3.13 These grave threats that

Stations antiunion campaign presents to the Debtors successful reorganization can be mitigated

substantially by two simple but powerful measures. First, retention of existing employees

should be made a condition of the new Propco transaction and of any sales of operating Opco

properties. Second, the Debtors management should be ordered to stop its illegal anti-union

campaign either directly or through its operating subsidiaries. The Employees Committee

urges the Court not to approve the Joint Plan of Reorganization without imposing these two

conditions.

13 Although Judge Jones did not say why he imposed this condition, it also avoided the wave ofpersonal bankruptcy cases that would have flowed inevitably from mass terminations, aconsideration even more acute here, where over 11,000 employees have their jobs on the line.14Disclosure Statement, p. 2.



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IV.

THE JOINT PLAN IS NOT FEASIBLE BECAUSE NEW PROPCO IS NOT FEASIBLE

AS PROPOSED

According to the Disclosure Statement, the Joint Plan will extinguish the existing CMBS

Loan by transferring Propco Assets to a New Propco, which will be formed by the Mortgage

Lenders to own and operate these casinos. In addition, the Mortgage Lenders will sell 50% of

equity in New Propco to Fertitta Gaming LLC for $85.6 million in cash, which will in turn sell a

portion of its equity stake to Colony Capital; Fertitta Gaming LLC will enter into a long-term

contract to operate the Propco properties for New Propco; and New Propco will enter into a new

$1.6 billion credit facility with the Mortgage Lenders.14

Collateral for Stations Land Loan,

consisting of the real estate around the Wild Wild West casino and a gaming-entitled parcel on

Cactus Avenue in south Las Vegas, will also be transferred to New Propco. The Disclosure

Statement does not disclose any further details about New PropCos capital structure or the terms

of the management agreement between FG and New Propco. More details are nevertheless

publicly available in the Term Sheet filed as part of Stations recent amended SC13D filing with

the SEC.

According to the Plan Term Sheet, dated 3/24/2010, the restructuring of Propco will

result in a New Propco with the following capital structure:

Assets

Approximately $166 million in cash, including $80 million retained from Propco and$85.65 million cash equity from Fertitta Gaming LLC.

The four Propco properties. Wild Wild West property and Cactus property.

Liabilities: $1.85 billion (up to $1.95 billion)

$1.6 billion mortgage term loan secured by the four Propco properties. $250 million land loan secured by the Wild Wild West and Cactus properties



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Potentially another $100 million under a revolving credit facility.Equity: $200 million

$200 million value. Deutsche Bank will own 31.25%, JPMorgan 18.75%, FG 45.625%,and Colony Capital 4.375%.

This means New Propco will have a debt-to-total capital ratio of over 90%, which is higher than

most major gaming operators.15 Furthermore, based on the fact that Station reported $310 million

of total adjusted EBITDA in 2009 and on Deutsche Banks claim that the Propco Properties

make about 60% of Stations total EBITDA, we estimate the four Propco properties generated

approximately $186 million in EBITDA in 2009.16 This would imply a Debt-to-EBITDA ratio of

8.8x, which would be far higher than the leverage ratio for other comparable gaming companies

(6.3x for Boyd Gaming, 4.3x for Penn National, 5.9x for Pinnacle Entertainment, and 4.8x for

Ameristar Casinos.)

The Debtors state in the Disclosure Statement that they are well aware of the risk of

retaining such high leverage after restructuring.17

It is not clear why they would pursue such a

course, which would seem to be contrary to the purpose of Chapter 11 reorganization. It is also

puzzling why the Mortgage Lenders would choose to support the creation of this untenable

capital structure at New Propco when they have the opportunity to either (1) extend much less

new debt to New Propco, (2) require much greater equity investment by FG, Colony, or

15 Kline Declaration, 13, Ex. J (Table 18: Gaming Universe Balance Sheet Items in the 4/5/2010issue of Gaming, Lodging & Cruise Lines: Weekly Data Packet by J.P.Morgan North AmericaEquity Research. Of the U.S. operators (excluding Wynn Resorts and Las Vegas Sands, whoseoperations are Macau-centered), Ameristar Casinos, Inc. has the highest debt-to-total capital ratio

at 83%, while the peer average is 71%).16 These four Casinos currently generate approximately 60% of the EBITDA of the Debtors as awhole. They also employ approximately 6,300 people, nearly half of the Debtors totalemployees. Statement of Position of Deutsche Bank Entities, 8/21/09, p. 2, Doc 153. ForStations 2009 results, see its 3/31/2010 press release Station Casinos Announces FourthQuarter Results, Kline Declaration, 14, Ex. K.

17 Disclosure Statement, p. 75.



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potentially other investors, or (3) sell the foreclosed Propco properties immediately for cash

recovery.

The Employees Committee has the same concerns about high leverage and inadequate

collateral value with respect to the Land Loan, which, according to the Joint Plan, New Propco

will assume along with taking over the existing Land Loan collateral (the Mortgage Lenders and

the Land Loan lenders are identical.) The Land Loan lenders know the current value of these

collateral assets is less than $250 million. In the first quarter of 2009, they informed Station that

they believed the value of the collateral had declined so much that the loan-to-value (LTV)

ratio had risen to approximately 129%, far exceeding the loan covenant LTV ratio of 40%.18 This

means that as of March 31, 2009, these lenders believed that, based on appraisals provided to

them, the value of the collateral was no more than $194 million. It is hard to see how they could

believe that the value of their collateral has rebounded very much, if at all, over the past year.

More likely than not, its value has declined even further. Even Station disclosed in its recently

filed SEC Form 10-K that it recorded a $617.4 million or nearly 66% impairment loss on its vast

land portfolio for the year ended December 31, 2009.19 It seems reasonable to assume the Land

Loan collateral would be currently valued at even less than $194 million, so it is unreasonable

for the lenders to use such collateral to secure a $250 million loan.

Deutsche Bank, one of the Mortgage Lenders, clearly has little desire to be heavily

involved on the ownership and operation side of the gaming industry. It has been widely reported

that after it foreclosed on the Cosmopolitan of Las Vegas project, it unsuccessfully tried to sell

the property and tried to find a manager, but is now resigned to operate the resort.20

It appears

the only reason for Deutsche Bank to hold on to the Propco properties for now is to

18 Kline Declaration, 15, Ex. L (Station Casinos Inc., 10-Q, filed 5/14/2009, p. 17).

19 Kline Declaration, 16, Ex. M (Station Casinos, Inc., 10-K, 3/31/10, p. 102).

20 Kline Declaration, 16, Ex. N (Cosmopolitan of Las Vegas see high-up views as draw,LasVegas Review-Journal, 4/10/2010).



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accommodate certain Station equity holders desire to remain in the gaming business. Moreover,

it appears to be holding onto the Land Loan collateral for the possible future development of a

proposed VIVA mega-billion resort by these same current Station insiders. But whether Station

insiders get to stay in the gaming business should not be the concern of the Debtors or the

Creditors, nor should it be a key component of a highly risky plan of reorganization. Instead, it

would seem that the Mortgage Lenders could get more immediate and more certain recovery if

they would sell the Propco Assets and the Land Loan collateral now, provided there is a willing

buyer(s).

The Chapter 11 process has taken its toll on the hourly workforce, through cuts and

uncertainty. The Employees Committee does not want to see a new company formed in the

process take another trip back into this court as a result of a shaky reorganization like this one

appears to be.

V.

CONCLUSION

For the reasons given above, the Informal Committee of Station Employees objects to the

Joint Plan of Reorganization as presently formulated and urges the Court not to approve it.

DATED: April 21, 2010RICHARD G. McCRACKEN,McCRACKEN, STEMERMAN & HOLSBERRY

By: /s/ Richard G. McCrackenAttorneys for Party-in-InterestLocal Joint Executive Board of Las Vegas


Objections to Reorganization Plan by Station Employees Committee

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Transcript of Objections to Reorganization Plan by Station Employees Committee