December 3, 2008 / 9:00 PM / 11 years ago

Holders deem Station Casinos bond offer "deficient"

NEW YORK, Dec 3 (Reuters) - Station Casinos Inc, which is fending off bankruptcy, said on Wednesday it has a received a letter from a lawyer representing its bondholders saying they view terms in a proposed debt exchange as inadequate.

The statement leaves the casino operator in a precarious position and could result in the company tripping terms in its bank loans, which could lead the company to file for bankruptcy protection, said Barbara Cappaert, analyst at KDP Investment Advisors.

The casino operator is offering to exchange senior and subordinated unsecured bonds for new secured term loans, with a coupon of 10 percent.

The new debt is being offered at a significant discount to par, with senior note holders being offered $540 per $1000 in debt and subordinated note holders offered only $200 per $1000 of bonds, according to CreditSights.

Holders of 66 percent of the outstanding debt deem the terms to be “deficient” and do not intend to tender their notes in the exchange offer, Station Casinos said in a filing with the Securities and Exchange Commission.

“We agree that bondholders, being asked to accept less than par for their obligations, would want more (i.e. equity or more bonds) and should in the very least ask to participate in the upside as would equity holders,” KDP analyst Cappaert said on Wednesday in a report.

“However, Station Casinos is in a more difficult situation,” she said. “If more debt were added to the exchange, then the company is at risk of tripping bank covenants (which the company hopes to avoid).”

Station Casinos is struggling with its debt load following its management-led buyout last year.

CreditSights analyst Christopher Snow said in a report last month that proposals in the debt exchange, even if successful, may not be enough to forestall a bankruptcy, with amendments in its bank loans likely still necessary.

“If bondholders push too hard, the company could then abandon the exchange and take its chances negotiating with the banks to avert a likely covenant trip at the end of December,” said KDP’s Cappaert.

“The last set of negotiations, for which Station walked away, would have added another 425 basis points to the rate paid on the term loan and revolver for just a year of covenant relief,” Cappaert said. “If the situation is not resolved and the pending bank violations are not fixed, Station is at risk of a chapter 11 filing.”

Reporting by Karen Brettell; Editing by Dan Grebler

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