After negotiating for months to get a prepackaged bankruptcy proposal approved by lenders, Station Casinos ended up filing for Chapter 11 bankruptcy protection in late July. The depressed economy has made it difficult for the company to meet debt obligations it incurred when it went private in 2007.

The filing is for Station Casinos’ parent company and some non-gaming assets. None of the company’s gaming properties were included in the filing. Kevin Kelley, chief operating officer for the company, said doing so ensured that operations would remain as usual for guests, vendors and team members.

Kelley recently spoke with Casino Connection Managing Editor Greg Jones to discuss some of the questions surrounding the company’s filing, and to explain just what it means to the company and its 13,000 employees.

Casino Connection: Clearly this was a difficult decision, not something that you really wanted to do, but a situation where you were left with no other choice. Could you explain some of the considerations that went into the filing?

Kelley: We have been working very hard with our lending group to come up with a scenario that would come up with a prepackaged solution to everyone’s concerns and that would have allowed us to get through this as quickly as possible.

We made lots of progress through the negotiating process, but I liken it to trying to herd cats. We’ve got a really complex capital structure, and if there are 15 cats that we’re trying to herd, we had about 13 of them in the bag, and when we went to try and get the other two in the bag and we captured them, by the time we got back, three had jumped out.

It seemed like that was what was going on for quite a bit of time. There were a few pieces of the puzzle that still remained and we felt that the right thing to do for the company was to provide an organized legal process that would help referee the ultimate conclusion of our negotiations, and that’s why we ultimately decided that seeking protection under Chapter 11 was the right choice for us.

How does this filing differ from the prepackaged proposal that you were talking about at the start of the year?

The bottom line is that in the prepackaged situation, everything would be completely agreed upon and, for the most part, the judge would just have to rule to make sure that all of the “i”s were dotted and the “t”s were crossed.

In this process, albeit voluntary, we have an exclusive negotiating right with our lenders as part of the process. There are still some elements of the negotiations that need be confirmed, crystallized and agreed upon and again; having that legal process to help referee that we think is going to help facilitate a much swifter resolution for us.

Do you have any idea what you might be looking at in terms of a time frame?

Obviously we’re hoping to get through this thing as quickly as possible. We could envision that we can get through this thing in as quickly as 120 days. But it may take longer than that, depending on how some of these protracted negotiations play out.

Once again, I think the good news is that we have a lot of motivated people who really see the virtues and the value of Station Casinos as it is today and want to see us emerge a stronger, leaner, more efficient company so everyone can share in the ultimate value that will be created by our ongoing operations.

Ultimately that seems like something that would be in everyone’s best interest.

Exactly. Our bondholders, our senior lenders, our bank group, they all bought into the company when it was valued at $9 billion. They’re going to like it as much at $3 billion because they know over time that our business model is the right business model; that we have the best assets in the market, human and physical; and that we’ll ultimately be able to take advantage of the growth in the valley when it returns. That is when they get paid. Again, I think they see that’s the best way to ultimately get the value back that unfortunately this economy has extracted from us all.

This filing is for the parent company of the properties. Does that mean there will be no impact on the operations at the properties themselves?

That’s correct. One of the things that was very important to us and to the lending group was to make sure that our operations weren’t impaired in any way through this process. And obviously we want to make sure that we had the resources to continue to make sure that the properties stay in good shape and that team members’ wages and benefits and vacations and all of the things that are important to them are not impacted to any degree whatsoever.
    The same time, our vendors and our guests are always very concerned in a situation like this. “What’s going to happen to my comp points?” and “What’s going to happen to this part of my rewards program?” and so forth. Obviously, if everyone is aligned as we are, you don’t want to see any damage come to the business through this process. Keeping the properties outside of it and allowing them to continue to do the good things that they do is very important, and that is why we’ve done it the way we’ve done it.

There were some limited layoffs earlier that were not related to the filing but were instead a result of the economy, but for clarity, are there any anticipated changes you foresee for your team members?

No, absolutely not.

Whether we have this restructuring or not, we have always prided ourselves on making sure that we run an efficient operation. What’s caused some of our very surgical downsizing, which is what I like to call it, is a downturn in the economy and the market here. You know as well as I do that unemployment is 12.5 percent, unfortunately, people’s home values are underwater, and we have some unprecedented economic challenges in this city.

As a gaming operator and a business operator, you have to do what you can to manage your expenses the best you can when revenues aren’t as robust as they could be. That’s caused us to make the adjustment to our staffing levels, not the fact that we’ve gone through this reorganization process.

One of the other things that has come up again recently was that one of your competitors made an offer earlier this year to purchase a number of your properties. Were you surprised when that offer was announced?

I’m not surprised. I think that would be the natural reaction for a company like that who has the kind of assets that they have in the city. Certainly you would want to grab better assets if you could. I think that they have a fiduciary responsibility to their shareholders to try to explore any and all opportunities to grow value.

First and foremost, what they were offering was completely out of the ballpark. And secondly, and most importantly, we weren’t even interested.

We have no interest in selling any of our assets or the company. Our whole intention here is to get our debt and get our company restructured in a way that allows us to take advantage of what we think is going to be a great future here in the valley, and that is really what we’re focused on and working toward. That is why when we entered the voluntary process, we have a lock-up agreement with our lenders that allows us the exclusive right to negotiate with them until we can get a deal done. That is the avenue that we’re going to pursue.

Is there anything that hasn’t been touched upon yet that you would like to say?

We started our company in 1976 and we’ve lived through some valleys and we’ve had some great boom times, and we are looking forward to getting through this little valley that we’re in right now to prepare ourselves for what we believe will be boom times in the future.

I think we have a great business model, but most importantly, we’ve got 13,000 of the very best team members in the whole city. It sounds very contrived, but I mean it from the bottom of my heart. These guys are so loyal and so passionate and so committed to Station Casinos, and they’ve been right there shoulder-to-shoulder with management as we’ve gone through these challenges. We feel very lucky that we have these kind of team members on board with us. We know that that is our biggest asset and they’re the ones who are ultimately going to get us through this downturn faster than anybody in the city.