MOODY'S ASSIGNS B3 RATING TO AMERISTAR'S SENIOR SUBORDINATED NOTES AND Ba3 RATING TO CREDIT FACILITY
New York, 10-08-96 -- Moody's assigned a B3 rating to Ameristar Casinos, Inc.'s ("Ameristar") proposed $100 million issue of senior subordinated notes due 2004 and a Ba3 to its new $125 million senior secured reducing revolving credit facility due 2003.
The ratings reflect Ameristar's increase in financial leverage throughout 1997, and the construction risks and uncertain cash flow from its casino under development in the Henderson-Green Valley market outside of Las Vegas. However, the ratings are supported by the company's stable cash flow from existing properties; its adequate interest coverage, even without the potential benefit of its new facility in Nevada; and its geographically diversified operations.
Proceeds from the note offering will be used to repay approximately $57 million in borrowings under its bank facility and $39 million in other senior debt. The new credit facility, combined with stable cash flow, should provide sufficient liquidity to cover $70 million of estimated remaining costs at the Henderson-Green Valley property (The Reserve), which the company plans to open by early 1998. For the pro-forma last 12 months ended March 31, 1997, Ameristar's debt outstanding was $174 million. By year end 1997, the company expects funded debt to increase to $226 million.
The Reserve, which is being constructed in a fast growing community, will include approximately 42,000 square feet of casino space, positioning it at roughly one half the size of Sunset Station and one third the size of Sam's Town. Of particular concern to Moody's is The Reserve's close proximity to Sunset Station, which opened in early June 1997. Sunset has the distinct advantage of being the first substantial property in this market and the potential to develop a loyal customer base. To compete effectively, The Reserve will need to differentiate itself from Sunset, which could require considerable time and marketing expenditures. In addition, because the planned completion date for the casino is only six months away, Ameristar may have problems meeting its January 1998 opening. Given the lack of fixed price contracts, combined with potential completion delays, cost overruns are a possibility.
On the other hand, Moody's expects that The Reserve will benefit from the fast growing Henderson-Green Valley community and from its convenient access off of route 515, which will position it as the first large-scale casino accessible to travelers coming from Arizona or other southern or southeastern locations.
Ameristar's existing properties in Vicksburg, Mississippi, Council Bluffs, Iowa and Jackpot, Nevada provide a steady and diverse base of cash flows. EBITDA for the last twelve months ended March 31, 1997, was approximately $40 million, providing pro-forma interest coverage of 2.4x and debt to EBITDA of 4.4x.
The Council Bluffs property benefits from limited competition due to its proximity to Nebraska, which is a non-gaming state, and from the limited number of casinos in its market. Also, because the Iowa Racing and Gaming Commission has indicated that no new licenses will be granted, no new competition is anticipated in the near future. However, Iowa casinos operate in a highly taxed environment and riverboats are required to cruise, to a limited extent. Because amenities were added throughout 1996 at Ameristar's property, including a hotel that opened in November, Moody's expects this property to generate improving cash flows throughout 1997.
Ameristar's Vicksburg property holds the leading market share of revenues within its market. A 144 room hotel now being added should help maintain a stable operating base. However, offsetting this is additional expansion to both the east and west of Vicksburg, in Philadelphia, MS, and Bossier City/Shreveport, LA. Although no new competition is currently planned in Vicksburg itself, the potential for an additional casino does exist (Lady Luck owns a site), which if developed, could have a significant negative impact.
The new credit facility will be secured by substantially all of the company's assets, which as of March 31, 1997, had a book value of approximately $280 million and an estimated market value of $220 million ($40 million EBITDA x 5.5 multiple), and will begin reducing in July 1999 in increasing increments ranging from $2.5 to $10 million. The leverage covenant prohibits the ratio of debt, excluding $29 million of debt issued under the Gem merger, to trailing 12 month EBITDA from being greater than 5.0, which will decline to 4.5 in March 1999, and to 4.0 in March 2000.
The. notes will be guaranteed on a senior subordinated unsecured basis by substantially all subsidiaries. They will be senior to the Gem notes, which as of June 1997 were approximately $28 million.
Ameristar Casinos, Inc., headquartered in Las Vegas, NV, owns and operates two casinos in Jackpot, NV, one casino in Council Bluffs, IA, and one casino in Vicksburg, MS.
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