LAS VEGAS--(BUSINESS WIRE)--On March 18, Station Casinos LLC announced that it was seeking approval from its bondholders to pay a special dividend to owners, which will be funded through a concurrent issue of $300 million of debt. The additional debt would be issued under its current bond indenture governing $500 million of 7.50% senior notes due 2021 (CUSIP: 857691AD1). UNITE HERE, the casino and hospitality workers’ union, urges the company’s bondholders to reject any proposal to borrow additional debt to pay its owners.
“There is a reason bondholders restricted the funds that could be paid out to owners. Bondholders lost almost everything in Station Casinos’ Chapter 11 bankruptcy reorganization, which followed a leveraged buyout that paid insiders $660 million with borrowed money,” said Ken Liu, research director of UNITE HERE’s Culinary Local 226. “This debt-for-dividend deal would dilute the value of junior debt and create unnecessary risk in a potentially rising interest-rate environment.”
According to Liu, it would seem especially inappropriate for Deutsche Bank, one of Station Casinos’ owners, to support the company’s proposal. The German bank is a lender under the casino company’s credit facility, which is secured by the company’s assets and senior in priority to the bonds.
“Even though Deutsche Bank and the other owners are ‘happy with the performance’ of Station Casinos, as the company described it recently, they shouldn’t pay themselves a special dividend by levering up the company and putting virtually all the risk on the unsecured creditors,” added Liu.
After adding $300 million of 7.5% debt, Station Casinos’ pro forma debt/EBITDA leverage would rise from 5.7x to 6.6x (per Moody’s) and interest coverage would drop from 2.8x to 2.4x (assuming no rise in LIBOR, which is used to calculate the interest rate for loans under the company’s $1.975-billion credit facility).
“When Station Casinos borrowed money to pay its owners last time, it ran into financial troubles and ended up firing 20% of its workforce,” said Geoconda Arguello-Kline, the Secretary-Treasurer of Culinary Local 226. “We don’t want the company to make the same kind of mistake again, especially when the economic recovery is still fragile in Las Vegas. A major local employer like Station Casinos can do more to provide good jobs with decent benefits in our community.”