Derivative Instruments

12 Months Ended

Dec. 31, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

Successor

The Company's objective in using derivative instruments is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, the Company uses interest rate swaps as a primary part of its cash flow hedging strategy. The Company's interest rate swaps utilized as cash flow hedges involve the receipt of variable-rate payments in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company does not use derivative financial instruments for trading or speculative purposes and has no derivative instruments that are not designated in hedging relationships.

In July 2011, the Company entered into three floating-to-fixed interest rate swaps with initial notional amounts totaling $1.3 billion which effectively convert a portion of its floating-rate debt to fixed rates. Under the terms of the swap agreements, the Company pays fixed rates ranging from 1.29% to 2.03% and receives variable rates based on one-month LIBOR (subject to a minimum of 1.50% for one swap with an initial notional amount of $228.5 million). The agreements terminate in 2015, and the notional amounts decrease over the life of the arrangements. The Company designated these interest rate swaps as cash flow hedges in accordance with the accounting guidance in ASC Topic 815. As of December 31, 2011, the Company had not posted any collateral related to these agreements, however the Company's obligations under the swaps are subject to the security and guarantee arrangements applicable to the related credit agreements.

Each swap agreement contains cross-default provisions under which the Company could be declared in default on its obligations under such agreement if certain conditions of default exist on the related Credit Agreement. As of December 31, 2011, the termination value of the interest rate swaps was a net liability of $23.4 million which represents the amount the Company could have been required to pay to settle the obligations had it been in breach of the provisions of the swap arrangements.

For derivative instruments that are designated and qualify as cash flow hedges of forecasted interest payments, the effective portion of the gain or loss is reported as a component of other comprehensive income (loss) until the interest payments being hedged are recorded as interest expense, at which time the amounts in other comprehensive income (loss) are reclassified as an adjustment to interest expense. Gains or losses on any ineffective portion of derivative instruments in cash flow hedging relationships would be recorded as a component of other income or expense in the consolidated statements of operations. At December 31, 2011, the Company's hedges had no ineffectiveness.

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheet as of December 31, 2011 (amounts in thousands):

	Balance sheet classification	Fair value
Derivatives designated as hedging instruments:
Interest rate swaps	Other long-term liabilities	$	20,047

The table below presents the effect of the Company's derivative financial instruments on the consolidated statement of operations for the Successor period June 17, 2011 through December 31, 2011 (amounts in thousands):

Derivatives in Cash Flow Hedging Relationships	Amount of Loss on Derivatives Recognized in Other Comprehensive Income (Effective Portion)		Location of Loss Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)		Location of Gain or (Loss) on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain (Loss) on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Period June 17, 2011 Through December 31, 2011			Period June 17, 2011 Through December 31, 2011			Period June 17, 2011 Through December 31, 2011
Interest rate swaps	$	25,546	Interest expense, net	$	5,499	Change in fair value of derivative instruments	$	—

Approximately $9.2 million of the deferred losses included in accumulated other comprehensive loss on the Company's consolidated balance sheet at December 31, 2011 is expected to be reclassified into earnings during the next 12 months.

Predecessors

The Predecessors used derivatives to add stability to interest expense and to manage exposure to interest rate movements or other identified risks. To accomplish this objective, the Predecessors primarily used interest rate swaps and interest rate caps as part of their cash flow hedging strategies. The Predecessors did not use derivative financial instruments for trading or speculative purposes.

On January 24, 2011, STN's floating-to-fixed interest rate swap with a notional amount of $250 million matured. This interest rate swap was not designated as a hedging instrument and as a result, gains or losses resulting from the change in fair value of this swap were recognized in earnings in the period of the change. STN paid a fixed rate of approximately 3.0% and received one-month LIBOR on this interest rate swap.

During 2009 and 2010, several derivative instruments were early terminated by STN and its 50% owned joint ventures including GVR Predecessor. In certain instances these early terminations resulted in balance sheet adjustments and in reclassifications of deferred losses, net of tax, from accumulated other comprehensive income (loss) into operations.

As of December 31, 2009, GVR Predecessor had a floating-to-fixed interest rate swap with a notional amount of $420.0 million. As a consequence of GVR Predecessor's default on its senior debt, the counterparty terminated the swap effective March 16, 2010 in accordance with the terms of the documentation governing the swap. As a result, GVR Predecessor reclassified the remaining $6.1 million of deferred losses related to this swap from accumulated other comprehensive income into earnings during the first quarter of 2010. The termination settlement amount of approximately $51.7 million was accrued and is reflected as a current liability in GVR Predecessor's balance sheet at December 31, 2010.

Predecessors' activity in deferred gains (losses) on derivatives included in accumulated other comprehensive income (loss) is as follows (amounts in thousands):

	Predecessors
	Period January 1, 2011 Through June 16, 2011		December 31, 2010			December 31, 2009
STN Predecessor
Deferred losses on derivatives included in accumulated other comprehensive loss, beginning balance	$	—	$	(1,985	)	$	(8,414	)
Gains (losses) recognized in other comprehensive loss on derivatives (effective portion), net of tax	—		—			1,286
Losses reclassified from other comprehensive income into income (effective portion) in change of fair value of derivative instruments	—		—			3,152
Losses reclassified from other comprehensive income into income as a result of the discontinuance of cash flow hedges because it is probable that the original forecasted transactions will not occur	—		1,985			1,991
Deferred losses on derivatives included in accumulated other comprehensive loss, ending balance	$	—	$	—		$	(1,985	)
GVR Predecessor
Deferred losses on derivatives included in accumulated other comprehensive income (loss), beginning balance	$	—	$	(6,108	)	$	(12,630	)
Losses reclassified from other comprehensive income (loss) into operations as a result of the discontinuance of cash flow hedges because it is probable that the original forecasted transactions will not occur	—		6,108			6,522
Deferred losses on derivatives included in accumulated other comprehensive income (loss), ending balance	$	—	$	—		$	(6,108	)

Presented below are the effects of derivative instruments on the Predecessors' statements of operations (amounts in thousands):

	Predecessors
	Period January 1, 2011 Through June 16, 2011		Year Ended December 31, 2010			Year Ended December 31, 2009
STN Predecessor:
Amounts included in change in fair value of derivative instruments:
Gains (losses) from interest rate swaps	$	397	$	—		$	28,019
Losses from interest rate cap	—		(42		)	(121		)
Net gains (losses) for derivatives not designated as hedging instruments	397		(42		)	27,898
Losses reclassified from other comprehensive income into income (effective portion)	—		—			(1,501		)
Losses reclassified from accumulated other comprehensive income into income as a result of the discontinuance of cash flow hedges because it is probable that the original forecasted transactions will not occur	—		—			(2,668		)
Total derivative gains (losses) included in change in fair value of derivative instruments	397		(42		)	23,729
Amounts included in reorganization items:
Losses from interest rate swaps	—		(2,607		)	(80,790		)
Amounts included in interest and other expense from joint ventures:
Gains (losses) for derivatives not designated as hedging instruments	—		(22,221		)	7,936
Losses reclassified from other comprehensive income into income (effective portion)	—		(386		)	(3,348		)
Losses reclassified from accumulated other comprehensive income into income as a result of the discontinuance of cash flow hedges because it is probable that the original forecasted transactions will not occur	—		(2,667		)	(394		)
Total derivative gains (losses) included in interest and other expense from joint ventures	—		(25,274		)	4,194
Total derivative losses included in consolidated statements of operations	397		(27,923		)	(52,867		)
GVR Predecessor:
Amounts included in change in fair value of derivative instruments:
Losses from interest rate swaps not designated as hedging instruments	—		(44,442		)	21,410
Losses reclassified from accumulated other comprehensive income (loss) into operations (effective portion)	—		(6,108		)	(6,522		)
Total derivative losses included in statements of operations	$	—	$	(50,550	)	$	14,888

The difference between amounts received and paid under Predecessors' interest rate swap agreements, as well as any costs or fees, was recorded as an addition to, or reduction of, interest expense as incurred over the life of the interest rate swaps. In addition, subsequent to the termination of its swap, GVR Predecessor recognized interest expense at the rate of one-month LIBOR plus 1% on the unpaid termination settlement amount, and the unpaid accrued interest on the terminated swap bore interest in accordance with the terms of the documentation governing the swap. Interest payable on GVR Predecessor's terminated swap totaled $5.4 million at December 31, 2010 which is included in accrued interest payable in GVR Predecessor's balance sheet. The following table shows the net effect of derivative instruments on Predecessors' interest and other expense and STN's proportionate share of the net effect of interest rate swaps of its 50% owned joint ventures (amounts in thousands):

	Predecessors
	Period January 1, 2011 Through June 16, 2011		Year Ended December 31, 2010		Year Ended December 31, 2009
STN Predecessor:
Increase in interest expense	$	487	$	7,011	$	77,479
Increase in interest and other expense from joint ventures	211		27,277		10,565
	$	698	$	34,288	$	88,044
GVR Predecessor:
Increase in interest and other expense	$	325	$	3,672	$	24,646

The fair values of outstanding derivative instruments were reflected in Predecessors' balance sheets as follows at December 31, 2010 (amounts in thousands):

	Predecessors
Balance Sheet Classification	Station Casinos, Inc.		Green Valley Ranch Gaming, LLC
Derivatives not designated as hedging instruments:
Interest rate swaps (a):
Liabilities subject to compromise	$	144,003	$	—
Accrued expenses and other current liabilities	9,334		51,686
Total liability derivatives	$	153,337	$	51,686

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(a) Includes termination settlement amounts for interest rate swaps that were early terminated.