Casino Buyouts Seen as More of a Gamble

Worries about casino owners' leveraged buyout deals have some investors taking money off the table.

Just look at Station Casinos'(STN Quote) stock. It's trading 7.5% below the company's $90-a-share buyout price for a deal expected to close within the next couple of months.

Station's LBO is the litmus test for the two other major deals in the casino sector that are scheduled to close further down the line. Shares of Harrah's(HET Quote) and Penn National(PENN Quote), which both agreed to buyouts that are expected to close within the next year, are also trading significantly below their deal prices, reflecting investor worry.

These concerns come amid turmoil in the credit markets that has left Deutsche Bank and JPMorgan, the lenders on the Station deal, unable to sell the junk bonds for the buyout, sources say. That means that Station Casinos' buyers -- which include CEO Frank Fertitta and private-equity firm Colony Capital -- will effectively have to draw a bridge loan to complete the transaction.

Thomas Friel, chief accounting officer with Station, says the buyers' financing is fully committed by Deutsche Bank and JPMorgan.

"From our perspective, it's priced. From their perspective it's not sold," Friel told TheStreet.com, referring to the lenders. "Either they hold it on their balance sheet or syndicate it down," he says.