S&P: Penn National loans BBB-

Standard & Poor's said it assigned a BBB- rating and 1 recovery rating to Penn National Gaming Inc.'s proposed $1 billion of incremental term loans.

The BBB- rating on the loans is two notches higher than the BB corporate credit rating on the company and the 1 recovery rating indicates 90% to 100% expected recovery in a default.

The outlook is stable.

The term loans will be comprised of a $400 million term loan A due July 2016 and a $600 million term loan B due July 2018.

The proceeds will be used to fund the acquisition of Harrah's St. Louis and to repay revolver borrowings, S&P said.

The agency also said it placed Penn National's 8¾% senior subordinated notes on CreditWatch with negative implications. The addition of the planned $1 billion of incremental term loans would result in a higher level of secured debt outstanding, S&P said. This reduces the recovery prospects for the subordinated notes enough to warrant a downward revision to the recovery rating on the notes, the agency said.

Upon closing of the incremental term loans, S&P said it expects to revise the recovery rating on the notes to 5, indicating 10% to 30% expected recovery, from 4, indicating 30% to 50% recovery expectation.

The agency also said it expects to lower the issue-level rating to BB- from BB.

The ratings reflect the company's aggressive financial risk profile and satisfactory business risk profile, S&P said.

The ratings also consider its expansion-based growth strategy and high debt leverage, as well as construction and risks related to the ramp-up of its development projects, the agency said.

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