Moody's places four gaming companies on review for downgrade

Citing uncertainty in travel and leisure, on the heels of the Sept. 11 terrorist attacks, Moody's Investors Service placed debt of gaming companies, Harrah's, MGM Mirage, Park Place Entertainment, and Mandalay Resort Group on review for possible downgrade, on Wednesday. Also on Wednesday the rating agency changed the debt of International Game Technology to outlook negative.

"We have already seen a return to more normal levels of play in many markets since the attack," the report stated. "However," it continued, "there is a concern that there may be a further decline in the volume of play as the economy deteriorates further, and that the players' gaming budgets may reduce with falling consumer confidence. These factors will impact both fly-to and drive-to markets. However, Moody's believes that fly-to markets such as Las Vegas will be more adversely impacted."

Ratings placed on review for possible downgrade, by Moody's, include the following:

--Harrah's Operating Company, Inc. senior unsecured bank credit facility (Baa3);

--MGM Mirage guaranteed senior unsecured bank facilities (Baa3), guaranteed senior unsecured notes (Baa3), guaranteed senior subordinate notes (Ba1), senior implied rating (Baa3), issuer rating (Ba1); Mirage Resorts, Inc. guaranteed senior unsecured notes (Baa3);

--Park Place Entertainment senior unsecured debt (Baa3), senior subordinate debt (Ba1), commercial paper at Prime-3;

--Mandalay Resort Group senior implied rating (Ba1), issuer rating (Ba2), bank credit agreement (Ba1), senior unsecured debentures and notes (Ba2), senior subordinated debentures and notes (Ba3);

Moody's changed to negative its outlook on International Game Technology senior implied (Ba1), senior usnsecured (Ba1) and issuer rating (Ba1).

Ratings that remain under review for possible upgrade: Anchor Gaming senior implied (Ba2), issuer rating (Ba3), senior subordinate (B1).

Fitch places major gaming companies' debt on negative watch

Anticipating a "severe decline" in both leisure and business travel over the near term, Fitch placed the debt of three major gaming companies, Boyd Gaming, Mandalay Resort Group, and Park Place Entertainment on Rating Watch Negative, Wednesday.

"We expect a meaningful decline in the profitability at gaming companies in the near term, particularly those most exposed to the Las Vegas Strip, which is heavily reliant on air travel," the report stated, adding that a return to a more stable business environment "is difficult to determine at this time."

Capital spending related to renovation has sent the credit statistics of Boyd Gaming (senior unsecured debt BB-) to "the low end of the rating range," the report said, adding that the company faces increased competitive pressure with respect to its operations in Mississippi and Nevada. However, the report continued, Boyd's geographic diversity "should buffer, to a certain extent, the dramatic declines expected in Las Vegas."

Meanwhile, major capital spending and share repurchase programs have resulted in substantially higher debt levels for Mandalay Resort Group (senior unsecured debt BB+), Fitch said, adding that the company remains highly dependent on Nevada, where it derives approximately 75% of its EBITDA. The report also pointed out that since nearly 50% of visitors to Las Vegas arrive by air, Mandalay "is expected to be substantially impacted by the Sept. 11, 2001 events."

Park Place Entertainment (senior unsecured debt BBB-) faces high debt levels and continued competitive pressures in Nevada and Mississippi, Fitch said. The rater added, however, that the company's geographical diversity and their postponement of the planned $475 million Caesars Palace hotel tower "could augment cash flow."

Moody's downgrades Finlay Fine Jewelry to B1, Finlay Enterprises to B3

Moody's Investors Service said it downgraded Finlay Enterprises and its subsidiary Finlay Fine Jewelry, affecting $500 million of debt. Moody's said it took the action as a result of lowered expectations for department store sales, and particularly for discretionary purchases such as fashion and gift jewelry, in the aftermath of Sept. 11th's events.

The rating agency added: "Expectations for Finlay's near term operating performance and balance sheet measures had already been lowered as a result of the existing consumer slowdown and the closure or conversion of Stern's stores into locations not serviced by Finlay."

Moody's cut Finlay Enterprises' senior implied rating to B1 from Ba3 and its $75 million senior unsecured notes due 2008 and its senior unsecured issuer rating to B3 from B2. Moody's lowered Finlay Fine Jewelry's $275 million senior secured revolving credit facilities due 2003 to Ba3 from Ba2 and its $150 million senior notes due 2008 to B1 from Ba3. The outlook is stable on all the ratings.

Moody's downgrades Lone Star Technology to B2, negative outlook

Moody's Investors Service said it downgraded its ratings on Lone Star Technologies, Inc., affecting $150 million of debt securities. Moody's said it made the downgrades in response to the company's pending $430 million acquisition of North Star Steel's Tubular Steel Division, which is being undertaken at a time of weakening market conditions for oil country tubular goods (OCTG).

Moody's said: "The North Star acquisition departs from Lone Star's representations concerning the scale of its acquisition appetite and financial risk tolerance made at the time of the note offering. The acquisition, for which Lone Star is paying 5.6 times trailing up-cycle EBITDA, will raise its debt to at least $400 million. The timing of the acquisition exacerbates the risk of the company's pro forma leverage, as recent declines in oil and gas drilling have caused a reduction in OCTG purchases, appear to have cut short the duration and strength of the drilling up-cycle, and threaten to undermine the economics of the North Star acquisition."

Ratings changed are Lone Star's $150 million of 9% guaranteed senior subordinated notes due 2011, cut to B2 from Ba3, its senior implied rating, reduced to Ba3 from Ba2, and its senior unsecured issuer rating, which falls to B1 from Ba3. The outlook is negative.

Moody's said the action completes a review begun on Aug. 22 when Lone Star was put on review for downgrade following its announcement of the acquisition.

S&P puts Encompass Services CreditWatch negative

Standard & Poor's put Encompass Services Corp.'s ratings on CreditWatch with negative implications, affecting $937 million in debt. S&P said it took the action after Encompass announced its financial performance in the second half of the year will be significantly below previous guidance issued on Aug. 6, itself reduced from May guidance.

S&P said: "Encompass has indicated that continued weakness in general industrial markets, reductions in capital spending plans in the telecommunications and technology sectors, and the tragic events of Sept. 11 have led to the shortfall. Although the company has not provided new guidance for the remainder of the year, Standard & Poor's notes that a modest further decline in EBITDA generation could lead to financial covenant violations under the firm's $900 million bank credit facility."

S&P said it will meet with management to discuss their operational strategies, including the decision to discontinue the company's global technologies group, and plans to cope with the firm's deteriorating credit profile before it takes a rating action.

Ratings affected are Encompass' BB corporate credit and senior secured debt rating and its B+ subordinated debt rating. Also included is the B+ rating for Building One Services Corp. subordinated debt guaranteed by Encompass.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.