Feb. 4 (Bloomberg) -- Station Casinos Inc., the Las Vegas gambling company taken private by management and Colony Capital LLC in 2007, proposed filing for bankruptcy in collaboration with lenders as it struggles to pay the debt from the buyout.

The company offered investors 10 cents to 50 cents on the dollar in secured notes and cash, in exchange for about $2.3 billion of existing bonds, Station Casinos said in a statement yesterday. Some secured lenders have agreed to support the plan, the company said.

Station, which promotes its casinos to local gamblers in the Las Vegas area, had trouble paying creditors in a market among the hardest hit by deteriorating home prices and recession- driven job losses. Gambling revenue in Las Vegas last year may have fallen the most on record.

Unsecured bondholders “would prefer more cash to go their way,” said Chris Snow, a debt analyst at CreditSights Inc. in New York. “It certainly helps that the sponsors are putting up more capital in the form of equity.”

The proposal comes 15 months after Station’s takeover by the Fertitta family and private-equity firm Colony Capital. The company owns 18 casinos, including Red Rock Casino and the 3- month-old Aliante Station.

As part of the proposal, affiliates of the Fertitta family and Colony Capital have agreed to invest as much as $244 million to maintain their current ownership stakes.

The owners putting up more capital is “a feature that was not in the failed bond exchange in December,” said Snow. “Bondholders just have to figure out if they think it’s fair.”

Approval Required

In December, Station abandoned a debt-exchange offer for some senior notes after trying to prod investors to accept a below-face-value cash payment or new, discounted notes with longer maturities.

If enough bondholders agree to this proposal, the company may file for Chapter 11 bankruptcy, Station Casinos said in the statement. Under bankruptcy regulations, two-thirds of senior noteholders and two-thirds of subordinated noteholders have to agree with the plan before it is filed.

Station would follow Tropicana Entertainment LLC into court protection. The Fertittas and billionaire Tom Barrack’s Colony Capital paid $90 a share, or $5.4 billion, and assumed about $3.3 billion in debt to acquire Station Casinos.

Deutsche Bank AG and JPMorgan Chase & Co. affiliates provided debt financing commitments. Station had $5.35 billion in long-term debt as of Sept. 30, according to a regulatory filing.

Missed Payment

Station Casinos missed a scheduled $14.6 million bond interest payment on Feb. 2, ahead of the restructure plan. The company said yesterday it had about $350 million in cash as of Jan. 31 to fund operations.

Fourth-quarter revenue fell about 19 percent to $290 million from a year earlier, Station said in the statement. Adjusted earnings before interest, taxes, depreciation and amortization probably declined 23 percent to between $97 million and $101 million, the company said.

Station, founded by Frank Fertitta Jr., started as a Las Vegas bingo hall in 1976 and grew into a casino company focused on attracting gamblers who live and work in Nevada’s Clark County, where the population more than doubled between 1990 and 2006.

Home Prices, Jobs

Las Vegas home prices peaked in August 2006 and fell 41 percent through last November, according to the S&P/Case-Shiller Home Price Index.

Unemployment in Nevada has outpaced the rest of the country since July 2007 after five straight years below the national rate. The state’s jobless rate was 9.1 percent in December, compared with 7.2 percent for all of the U.S.

Harrah’s Entertainment Inc., the world’s largest casino company, swapped $2.22 billion in bonds for new notes and cash in December in a sweetened exchange offer aimed at pushing back maturities and reducing debt.

Leon Black’s Apollo Management LP and TPG Inc. acquired Harrah’s in January 2008 for $30.7 billion, including $13.4 billion in assumed debt and transaction costs.

For Related News and Information:

To contact the reporter on this story: Beth Jinks in New York at bjinks1@bloomberg.net

Last Updated: February 4, 2009 00:00 EST