MOODY'S ASSIGNS B1 TO 1ST MTGE NOTES OF RIVIERA HOLDINGS CORPORATION
New York, 05-09-96 -- Moody's Investors Service assigned a B1 rating to Riviera Holdings Corporation's $100 million issue of first mortgage notes, issued as part of the company's bankruptcy reorganization in June 1993. The notes are secured by a first lien on substantially all the company's fixed assets, which had only a $120 million book value at the end of December 1995. This is the first time that Moody's has rated the debt of this company.
The rating recognizes the benefit of the prudent and focused business strategy implemented by the new management since its arrival in late 1992. However, the rating is based on Riviera's dependence on one hotel and casino, high financial leverage, limited financial flexibility, and its restricted ability to invest in its property due to tight covenants regulating capital expenditures. The rating outlook is negative, as new investments are likely to be necessary to preserve a competitive edge in light of the expansion of Las Vegas.
Riviera's business strategy, designed to stabilize cash flows and to ensure profitability, is to attract patrons of slot and mid-level table games; to concentrate its marketing and promotion toward patrons living in certain geographic areas; to tighten credit policies; and to reduce exposure to volatile gaming segments, such as Baccarat and sports betting. As a result, Riviera returned to the black in 1993 and over the last two years posted flat revenues of about $150 million and cash flows (EBITDA) of around $26 million, which provided an adequate interest coverage of above 2 times.
But it is uncertain if Riviera will be able to sustain this level of operating performance over the next several years as Las Vegas sees its second major expansion since 1994. This year, three new mega-resorts, offering 7,500 new hotel rooms, are scheduled to open on the Strip. Another 5,300 rooms are to be added at both new and established resorts in 1996, and, in 1997, an additional 2,200 rooms should become available. In addition, Riviera's direct competitors, Boyd Gaming and Circus Circus, which control the two casinos located across the street, have also announced their intention to build about 1,000 new hotel rooms each. In contrast to Riviera, these two companies have deep financial resources to fund any expansion or renovation.
Riviera has only limited financial flexibility to upgrade its facility to fend off competition from the newest hotel/casino complexes and modernized or expanded facilities. It has no bank facility and its liquidity is limited to its cash on hand, which was $22 million at the end of December 1995. In addition, capital expenditures are currently restricted by the notes' covenants. In 1996, the company is allowed to spend $18 million in capital expenditures, of which it plans to use $10 million. It can also spend some percentage of generated cash flows. In addition, the company is able to enter into some joint ventures. Financial leverage is high at about 80% of total capitalization. On the positive side, the company has no major debt amortization for the next five years.
Riviera Holdings Corporation indirectly owns and operates the Riviera Hotel & Casino facility on the Las Vegas Strip. The facility offers both a 105,000-square foot casino with 1,270 slot machines and 49 gaming tables, and a 2,100-room hotel.
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