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“Too-Big-To-Regulate”

We recently sent a letter to Nevada Governor Brian Sandoval  to provide the governor with “specific examples of problems related to the approval of the Station Casinos/Red Rock Resorts IPO by the Nevada Gaming Commission on January 21, 2016 in order to illustrate the challenges Nevada faces in regulating a ‘too-big-to-regulate’ significant owner of one of the major gaming companies in Las Vegas.”

The entire letter can be viewed here.

In the letter, we discuss the rushed nature of the approval of the IPO by the Gaming Control Board and Nevada Gaming Commission, Deutsche Bank’s accountability as the parent company and affiliate of a felon, federal regulators’ reactions to the bank’s misconduct, and the relationship between the bank and its designated director at Station Casinos, Mr. Robert A. Cashell, Jr. We also ask whether Nevada’s gaming regulators are too permissive toward “too-big-to-regulator” investors.

Our letter concludes with the following:

We cannot help but worry that Nevada gaming regulators appear unwilling to confront head-on the admittedly complex issues related to a “too-big-to-regulate” investor like Deutsche Bank, which is affiliated with a felon. We are fearful that this apparent unwillingness on the part of our state regulators might invite unwelcome scrutiny from federal officials, especially as federal regulators and investigators continue to work to hold Deutsche Bank accountable for its actions. Some might even begin to question whether Nevada is capable of upholding the “gold standard” of gaming industry regulation when our regulators continue to look the other way and refuse to ask hard questions about why the affiliate of a felon continues to own and profit from casinos in our state.

The entire letter can be viewed here.


See more of our analysis of the Red Rock Resorts/Station Casinos IPO:

The IPO Is Postponed, Per Deutsche Bank

Deutsche Bank announced on January 28 that the Station Casinos (Red Rock Resorts) IPO had been postponed. According to Co-CEO John Cryan, the decision was made in the previous week “due to market conditions.” On January 21, Station Casinos CFO Marc Falcone had made a presentation of the company’s “$450 million of primary offering of shares” at a special meeting of the Nevada Gaming Control Board.”

Two questions come to mind:

1. Will the Fertitta family and other insiders seek other ways to fund the $460-million Fertitta Entertainment deal even before the IPO goes to market?

Last March, the company sought approval from holders of its $500 million bonds to issue another $300 million of bonds to fund a special distribution to its owners. It cancelled those plans by May for “off-the-record” reasons. In the third quarter last year, it paid distributions of $106.4 million to Station Casinos LLC members, which was more than the company’s EBITDA of $90.0 million in the quarter. According to CFO Marc Falcone’s comments at the Gaming Control Board meeting on January 21, the company currently has $350 million available under its revolving credit facility. Will the company tap the revolver to fund the Fertitta Entertainment acquisition or make other cash distributions to the owners now that the IPO is on hold?

2. Will the terms of the IPO be modified?

We have pointed out various issues with the way the public offering has been structured since it was first announced in October. See more of our analysis of the Red Rock Resorts/Station Casinos IPO:

We also sent a letter to the SEC on January 26 to draw attention to certain information missing from the prospectus filings by Red Rock Resorts.

We will keep you updated with more in-depth analysis of the Red Rock Resorts/Station Casinos IPO. Sign up for updates here or follow us on Twitter at @UHGamingRe.