LOCAL 226 RESEARCH UNITE HERE!

GAMING RESEARCH
February 20, 2012

Station Casinos LLC

Las Vegas Locals Market Squeeze
Station Casinos LLC is a new entity that acquired most of the assets of Station Casinos, Inc. in the latters Chapter 11 bankruptcy reorganization last summer. The new companys board is now controlled by (1) designees of Deutsche Bank and JPMorgan, who have been marketing the companys high-yield bonds to take out its mortgage term loans they hold on their own books, and (2) Frank and Lorenzo Fertitta, whose affiliate, Fertitta Entertainment LLC, has a 25-year management contract to operate the companys casinos. Table 1: Las Vegas Locals Market Slot Gaming Win, 2007 - 2011
2007 Slot Gaming Win ($bn) Compare to 2007 (%) 2.23 2008 2.02 -9.5% 2009 1.81 -18.6% 2010 1.73 -22.2% 2011 1.76 -21.0%

Source: Nevada Gaming Control Board, UNITE HERE Gaming Research Station Casinos LLCs business is virtually entirely concentrated in the Las Vegas Locals market (consisting of the North Las Vegas, Boulder Strip, and Balance of Clark County sub-markets). Outside of Las Vegas, it only has a minor revenue-generating tribal casino management contract (through a joint venture) in western Michigan. Given the companys reliance on the LV Locals market, investors should be aware of the following recent developments when they examine the new issues of high-yield bonds by the company:

The Locals Market continues to be sluggish, especially adjusted for slot hold percentages. According to our calculations based on data from the Nevada Gaming Control Board, the Las Vegas Locals gaming market (including North Las Vegas, Boulder Strip, and the Balance of Clark County sub-markets) is still down over 21% compared to peak 2007 levels, as measured by total amounts wagered by customers. In 2011, even though total gaming win increased by 1.5%, the total amount wagered grew less than 0.8%, compared to 2010. The greater gaming win came from higher slot hold percentage, namely, tighter slot machines (see Chart 1 below). For example, on a year-over-year basis, October saw an 8.35% jump in gaming win, which was made possible by a nearly 50 basis points rise in hold percentage as the total amount wagered actually dropped by nearly 140 basis points. We dont believe it is a sustainable long-term strategy to rely on tighter slots to generate higher gaming revenue. Station Casinos is attacking the Culinary Union, the largest organized group of Las Vegas local residents. Station Casinos COO Kevin Kelley stated in a January, 2010 interview that the company has relied on locals as the backbone of our business. And the majority of those folks were people who worked in the hospitality industry. The vast majority of rank-and-file food and beverage, housekeeping and front services workers on the Las Vegas Strip and Downtown Las Vegas are represented by Culinary Local 226 and Bartenders Local 165 of UNITE HERE. Why

Ken Liu 702-387-7001 kliu@culinaryunion226.org

UNITE HERE is the hospitality workers union that represents workers in the gaming industry across the country. The Research Department provides research on the gaming industry from the perspective of those who work in the industry.

LOCAL 226 RESEARCH UNITE HERE! GAMING RESEARCH

then is Station Casinos waging a provocative anti-union campaign against the Culinary with TV commercials, billboards, and other media throughout the Las Vegas area? Is the company concerned at all about antagonizing a major block of potential customers in its primary market?

Station Casinos has seen a decrease in business due to the Culinary Unions response to its anti-union campaign. Station Casinos management has recently stated that the Culinary Unions efforts to educate customers and local community about the companys anti-union attacks on workers are having an impact and that business has been lost as a result. Has the company quantified the amount of business lost due to the Culinary Unions response to its anti-union campaign? Former bondholders of Station Casinos, Inc., lost almost everything in the Chapter 11 reorganization. The unsecured creditors holding bonds with a face value of $2.25 billion lost virtually everything in the Chapter 11 bankruptcy reorganization that concluded last summer. In the end, unsecured creditors, including affiliates of Fidelity, Serengeti Asset Management, and Oaktree Capital Management, would be given warrants and an opportunity to purchase 15% of the reorganization companys new equity for $35.3 million. Will the bondholders of Station Casinos LLC have sufficient protection in the event that the company restructures its debts again?

Chart 1: Las Vegas Locals Market Slot Hold % vs. Slot Gaming Win in 2011

LV Locals Market Slot Hold % and Slot Gaming Win in 2011

10.0% 5.0% 0.0% -5.0% -10.0%
May-11 Mar-11 Nov-11 Feb-11 Aug-11 Sep-11 Apr-11 Oct-11 Jun-11 Jul-11 Dec-11 Jan-11

0.6% 0.4% 0.2% 0.0% -0.2% -0.4% -0.6%

Change in Slot Gaming Win (%)

Change in Slot Hold Percentage

Source: Nevada Gaming Control Board, UNITE HERE Gaming Research

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