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Rating Action:

MOODY'S ASSIGNS A B1 FIRST-TIME DEBT RATING TO CIRSA FINANCE Plc's EURO 150 MILLION SENIOR UNSECURED NOTE ISSUANCE, GUARANTEED BY CIRSA BUSINESS CORPORATION, S.A.

16 Jun 2000
MOODY'S ASSIGNS A B1 FIRST-TIME DEBT RATING TO CIRSA FINANCE Plc's EURO 150 MILLION SENIOR UNSECURED NOTE ISSUANCE, GUARANTEED BY CIRSA BUSINESS CORPORATION, S.A. Moody's Investors Service has assigned a first time B1 debt rating to Cirsa Finance Plc's proposed Euro 150 million notes due 2007. The notes are unconditionally guaranteed on a senior unsecured basis by Cirsa Business Corporation, S.A. ("Cirsa"), which has been assigned a Ba2 senior implied rating. The ratings reflect Cirsa's leveraged capital structure, its private ownership and somewhat complex group structure, in addition to the increasingly competitive environment in the consolidating domestic gaming market and the potential impact of changes to the tax and regulatory regimes under which it currently operates. The ratings also recognise the strength and stability of Cirsa's core businesses (gaming machine operation and manufacture), its long term involvement and expertise in these sectors, the group's strong vertical integration and Cirsa's leading positions within the Spanish domestic market, which is already subject to a high degree of regulation. The two notch differential between the note rating and the senior implied rating reflects the degree of both structural and effective subordination in existence. A stable outlook has been assigned, in addition to a B1 senior unsecured issuer rating.


Cirsa is a Spanish leisure and gaming company with leading domestic market positions in the manufacture and operation of gaming machines, the operation of bingo halls and of casinos. While Cirsa's core businesses typically have low growth characteristics they also exhibit a good degree of stability which helps to underpin the ratings. The high degree of domestic market regulation and the regional variations and complexities create barriers to entry, particularly for potential foreign competitors. In view of the maturity of the domestic market, future growth of these core businesses is likely to be acquisition led and we would expect Cirsa to continue to increase its domestic market positions via the acquisition of bingo halls, machine route operators and also new casino licenses.


While international operations currently account for around 26% of sales, geographic distribution is expected to increase as the company continues to expand overseas, particularly into Latin America where growth will be primarily driven by the Buenos Aires riverboat casino over the near term. The riverboat casino, which is currently the only casino in Buenos Aires, accounts for a substantial portion of Cirsa's international business. The Buenos Aires casino commenced operations in October 1999 and has performed well during its initial period of operation. However, the riverboat license is currently subject to litigation between the City of Buenos Aires and the State Lottery of Argentina and while we would expect this issue to be eventually resolved satisfactorily, the dispute could potentially adversely impact the company's business.


The Company is privately owned by the founder and controlling shareholder, Manuel Lao Hernandez, who is also the Chairman and President. He has significant influence on the group's business prospects and any loss of his services could adversely affect the company's business prospects. While Cirsa currently demonstrates adequate debt protection measurements for the rating category the note indenture allows the company a fair degree of flexibility to raise its debt levels in future. It is Moody's understanding that the company's senior management will ensure that current coverage levels will not be allowed to deteriorate and that it is Cirsa's intention to continue to strengthen both debt protection measures and the group's capital structure over the intermediate term.


The guarantor, Cirsa, is a privately owned holding company which conducts its business through some eight intermediary holding companies and over 170 subsidiaries, which hold most of the group's assets and which have a prior claim to the group's cash flows and assets. The notes have been rated B1, two notches below the Ba2 senior implied rating of the group, factoring in both structural subordination and also the effective subordination of the guarantee to senior forms of financing.


The issuer, Cirsa Finance Plc, is a UK-domiciled special purpose orphan company created to efficiently raise funds, which will be on lent to Cirsa. The note proceeds will be used in part to repay existing debt and to provide additional funds for general corporate purposes, including expansion of the group's businesses. The rating also takes into consideration the fact that while the notes and the guarantee are governed by New York law, the term loan (on lending of note proceeds by the issuer to Cirsa) will be governed by Spanish law, while Cirsa itself is organised under Spanish law and the issuer is organised under the laws of England and Wales. The complexity of this structure may raise issues as to the enforceability of the guarantee in the event of any legal proceedings across differing jurisdictions.


The rating outlook is stable, reflecting Moody's expectation that while the Spanish gaming sector is likely to become increasingly competitive, Cirsa will continue to successfully protect its leading domestic market positions via add-on acquisitions and also generate increased cash flow from its expanding international operations.


Cirsa Finance Plc is a special purpose borrowing vehicle, domiciled in the UK. Its obligations are guaranteed on a senior unsecured basis by Cirsa Business Corporation, S.A., a leading Spanish leisure and gaming company.




No Related Data.
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