Moody's rates AGS loans B3

Moody's Investors Service said it assigned a B3 corporate family rating and Caa1 probability-of-default rating to AGS LLC and B3 (LGD3, 35%) ratings to its proposed $20 million five-year secured and guaranteed revolving credit facility, $30 million six-year secured and guaranteed delayed draw term loan and $125 million six-year secured and guaranteed term loan.

The outlook is stable.

The facilities - which are secured by all assets and are guaranteed by parent company AGS Capital LLC - will be used to refinance existing debt, to pay a dividend to shareholders and to finance loans to Native American tribes for casino expansion projects. Moody's noted that the company's shareholders have already received cash returns in excess of their original investment.

The agency said the ratings reflect the company's considerable revenue and supplier concentration risk, heavy reliance on a few key managers for game design and relationship management, development risk, an increasingly competitive operating environment and regulatory risk related to potential changes in the definition of class II gaming machines. Additionally, total debt exceeds annual revenues, liabilities exceed total assets and the estimated debt-to-EBITDA ratio at the end of 2007 is 3.9x.

Positive rating considerations include better-than-average credit ratios for the rating category, high margins, a track record of profitable growth, an ability to date of competing effectively against larger and better-capitalized peers, a strong contract retention rate, new growth opportunities and adequate liquidity, Moody's said.

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