BYD: DEVIL’S IN THE DETAILS

Boyd responded to the rejection of its offer to buy Station Casino’s OpCo assets by reaffirming its offer. Station’s Board rejected BYD’s offer last week, citing concerns surrounding BYD’s financial position and the risk of sharing sensitive financial information with a competitor.

This situation is not likely to be settled soon and the decision will ultimately reside with STN’s bondholders. The most important near term takeaway, however, may be the strength of BYD’s financial position as discussed in BYD’s response filed as an 8k with the SEC yesterday:

“Boyd Gaming reiterates that it has sufficient liquidity under its credit facility to finance a cash transaction, and contemplates that no amendment to its credit facility would be required under the proposed transaction structure.”

What should be noted here is that BYD would not require any amendment to its credit facility to complete the transaction. This is critical to the BYD story. Clearly, unlike the Street, BYD is comfortable with its covenant situation, and more importantly, so are the banks. I’m pretty sure the banks were consulted, and gave their consent, before the offer was made.

I recognize the challenging fundamentals facing BYD this year. However, given the increasingly apparent strength of its financial position, the stock probably should not trade as an option. The regional markets are stabilizing and there is reason to be optimistic about the Las Vegas locals market in 2010. Picking off some of the Station assets would be gravy.

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