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:

• The insiders are cashing out at a high price compared to the company’s estimated equity.
• The tax receivable agreement could drain substantial amount of cash out of the company and affect free cash flow.
• The dual-class structure will make public investors second-class shareholders.
• The lack of disclosure regarding the regulatory problems of Deutsche Bank, a 25% current owner.
• Growth concerns in the company’s primary Las Vegas locals market and the lack of new development agreements in the tribal gaming market.

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.