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Rating Action:

MOODY'S ASSIGNS B2 TO RIVIERA HLDGS PROPOSED $210 MIL. SR. SECURED NOTES DUE 2010; RATINGS OUTLOOK REMAINS STABLE

10 Jun 2002
MOODY'S ASSIGNS B2 TO RIVIERA HLDGS PROPOSED $210 MIL. SR. SECURED NOTES DUE 2010; RATINGS OUTLOOK REMAINS STABLE

New York, June 10, 2002 -- Moody's Investors Service assigned a B2 to Riviera Holdings Corporation's proposed $210 million senior secured notes due 2010, and confirmed the company's existing ratings. The ratings outlook remains stable.

New rating assigned:

- $210 million senior secured notes due 2010 - B2

Existing ratings confirmed:

- Riviera Holdings Corporation 10 ¼% first mortgage notes due 2004 at B2

- Riviera Holdings Corporation senior implied rating at B2

- Riviera Holdings Corporation senior unsecured long-term issuer rating at B3

- Riviera Holdings Corporation ratings outlook - stable

- Riviera Black Hawk Inc. 13% first mortgage notes due 2005 at B3

- Riviera Black Hawk Inc. senior implied rating at B3

- Riviera Black Hawk Inc. senior unsecured long-term issuer rating at Caa1

- Riviera Black Hawk Inc. ratings outlook - stable

The ratings consider Riviera Holdings high pro forma consolidated leverage, about 6.5x, the near-term negative impact on the Las Vegas gaming market resulting from the Sep. 11, 2001 tragedy, and the expectation of additional debt financing related to possible future development. In addition to allowing for a $30 million secured working capital line that will rank senior to the new secured notes, the new note indenture allows for up to $30 million of permitted investments. In effect, any restricted group revolver can be used towards development of future unrestricted subsidiaries. Currently, the company has submitted a $150 million proposal related to casino development in Jefferson, MO, and is also pursuing a racetrack development project in Hobbs, NM.

The ratings also recognize that the proposed new note indenture includes other carve-outs in addition to the one for a $30 million secured working capital line. These carve-outs include $7.5 million for capital lease obligations, and $10 million for other debt. None of the carve-outs will be subject to the 2.0x fixed charge debt incurrence test. The working capital line will also rank senior to the new notes. Separately, there will be an $8 million restricted payments allowance outside of the net income-based restricted payments test.

Positive ratings consideration is given to the secured nature of the notes, the strength of the Black Hawk, CO gaming market, the company's good near-term liquidity profile, and the favorable long-term prospects of the Las Vegas gaming market. Although Las Vegas was hit hard by the events of Sep. 11, 2001, Moody's believes that the market's prospects are good over the long-term given its established position as a top U.S. destination resort. Currently, Las Vegas accounts for almost two-thirds of the company's EBITDA and half of the free cash flow. With respect to liquidity, the refinancing should lower the company's overall financing costs and will leave the company with little in the way of scheduled long-term debt maturities through 2010.

This transaction will effectively consolidate Riviera's Las Vegas, NV and Black Hawk, CO properties into one restricted group entity. Previously, the Black Hawk property was financed through a non-recourse, unrestricted subsidiary. Proceeds from the new notes will be used to defease Riviera Holdings Corporation's B2 10 ¼% first mortgage notes due 2004, and redeem Riviera Black Hawk Inc.'s B3 13% first mortgage notes due 2005. The ratings on these two notes, along with Riviera Black Hawk's B3 senior implied rating and Caa1 senior unsecured long-term issuer rating, will be withdrawn once the transaction is complete.

Riviera Holdings Corporation owns and operates the Riviera Hotel and Casino on the Las Vegas Strip and the Riviera Black Hawk Casino in Black Hawk, CO.

New York
Mark Gray
Senior Vice President
Corporate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Keith Foley
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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