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An Update on Private Jets (and Yachts!)

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The Fertitta Fleet

Readers may recall that Fertitta Entertainment LLC, the Fertitta-owned company that had no business other than managing Fertitta-owned-Station Casinos’ properties under contract, was purchased by Fertitta-controlled Red Rock Resorts last year using IPO proceeds plus additional debt. One of the interesting features of the transaction was that the private jet of Fertitta Entertainment was not included in the deal. The $30-million airplane was instead “transferred” to Fertitta Business Management LLC, making the Fertittas collectively owners of four private jets.

No More Private Jets for Red Rock: Of the planes owned by Fertitta entities, a Boeing Business Jet and a Gulfstream G-IV have been on the market since at least February 9, 2017.  The remaining jets not for sale are the 2011 Bombardier Global Express from Fertitta Entertainment and a 2008 Bombardier Global Express.

Even with their own private jets, sometimes the Fertittas would make use of the company jet for their own personal travel. In 2016, Red Rock’s CEO made $41,495 worth of personal use of the Fertitta Entertainment jet, up to the point of the consummation of the IPO, when the plane’s ownership transferred. In 2015 and 2014, the CEO compensation included $246,486 and $187,146 for “personal use of aircraft leased by Fertitta Entertainment,” respectively.[1] Before Station Casinos, Inc. filed for Chapter 11 bankruptcy, executives also made “personal use” of the company’s airplane. In 2006, for example, compensation for three executives included $147,765 of personal use of company aircraft.[2]

That’s a lot of personal travel on these executives’ part. But presumably the company (Red Rock and its pre-Chapter 11 predecessor Station Casinos Inc.) had a company jet for business purposes. Now that Red Rock Resorts is private jet-free, do its executives simply fly commercial as they try to look for growth opportunities outside Las Vegas, even around the world (e.g., Brazil)? Are they looking for growth opportunities?

The Fertittas’ private fleet made 153 flights into airports in southern California in the twelve months following RRR’s IPO. In the same period, international destinations included locations in southern Europe and the Caribbean (but no flights to Brazil).

From Private Jets to Mega-Yachts: While preparing to take their company public, the Fertittas financed the construction of two mega-yachts. Financing for a 285-foot yacht was secured on November 2, 2015, and for a 308-foot yacht on March 24, 2016. Photos of just one of the yachts have surfaced online.

Should billionaire owners of such super yachts continue to be subsidized by Red Rock Resorts outside shareholders, who have been paying the Fertittas’ income tax with cash “tax distributions”?

In 2016, cash distributions to owners of Station Casino LLC totaled $142.8 million, including $43.6 million of “tax distributions.” In 2015, cash distributions to owner of Station Casinos LLC totaled $162.3 million [3], but the amount of tax distributions was not disclosed.

* Based on capacity of yachts of similar length

[1] See Red Rock Resorts Inc., SEC Form 424B1, filed 4/28/16, p. 138; and Station Casinos LLC, SEC Form 10-K, filed 3/10/15, p. 112.
[2] Station Casinos Inc., SEC Form 10-K/A. filed 4/27/07, p. 16.
[3] Station Casinos LLC, SEC Form 10-K, filed 2/29/16, p. 81

The IPO and the Fertitta Entertainment Airplane

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In September 2015, Fertitta Entertainment LLC, the entity that Station Casinos LLC is proposing to acquire for $460 million using Red Rock Resorts, Inc. IPO proceeds and additional debt, borrowed $30 million to buy “an asset.”  As the company says in its IPO filings, “Fertitta Entertainment entered into a $22.0 million secured promissory note and drew an additional $8.0 million under its revolving credit facility to finance an asset purchase.” The company has not disclosed the nature of the asset purchased.

Loan documents we have found show that Fertitta Entertainment bought a 2011 Bombardier Global Express jet in September with a $22 million loan from Guggenheim Aircraft Opportunity Master Fund LP.  The five-year loan from Guggenheim was made with a Fertitta Entertainment subsidiary, FE Aviation II LLC.

Deciding How to Pay $30 Million

Red Rock Resorts will at least pay off some of the financing used for the purchase.  According to the IPO filings, “All amounts outstanding under the [Fertitta Entertainment] Credit Facility are expected to be repaid, and the FE Credit Facility is expected to be terminated, upon consummation of the Fertitta Entertainment Acquisition.” Red Rock Resorts will therefore pay off at least the $8 million Fertitta Entertainment borrowed from its revolver to finance the private jet purchase.

What about the $22 million loan? The IPO filings do not make clear if the company will also pay off the $22 million loan Fertitta Entertainment took for the private jet.  What the filings do make clear is that paying off this $22 million loan will not be part of the $460-million purchase of Fertitta Entertainment.

Other than the date and the asset’s $30 million price tag, this is the extent of the details disclosed by the company about the $22 million loan: “The promissory note has a term of five years and requires Fertitta Entertainment to make monthly principal and interest payments. The promissory note bears interest at LIBOR plus 5.25% and contains a number of customary covenants and events of default.”

Meanwhile, the company states that, “an airplane will be transferred by Fertitta Entertainment to one or more of its members or their affiliates prior to the consummation of the Fertitta Entertainment Acquisition.”  No further details about this transfer are disclosed in the IPO filings.

53 Flights in One Month

The same month Fertitta Entertainment borrowed $30 million for a private jet, two other private jets owned by the Fertitta family made 53 flights in September alone.  Both private jets are registered through entities that list Frank J. Fertitta III, and Lorenzo J. Fertitta as managing officers (see here and here).  One private jet made thirteen round-trips between Las Vegas and southern California, and the other private jet made three round-trips between Las Vegas and Indiana, and also flew to Pennsylvania, Virginia, California, and New Mexico.

Red Rock Resorts, whose primary business lies in the Las Vegas locals market, claims “that one of [their] competitive strengths has been the ability of our highly experienced management team, led by the Fertitta family, to identify, develop and execute innovative and value-creating opportunities.”  The company has not disclosed what out-of-Las Vegas opportunities its owners might have been pursuing with their frequent travel.

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