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Rating Action:

MOODY'S CONFIRMS AMERISTAR'S DEBT, ASSIGNS Ba3 RATING TO PROPOSED SECURED BANK FACILITIES

17 Nov 2000
MOODY'S CONFIRMS AMERISTAR'S DEBT, ASSIGNS Ba3 RATING TO PROPOSED SECURED BANK FACILITIES

Approximately $800 Million of Debt Rated

New York, November 17, 2000 -- Moody's Investors Service confirmed the existing debt ratings of Ameristar, Inc., and assigned debt ratings to its proposed senior secured bank credit facilities. The rating action assumes the completed debt-financed purchase of Station Casino's Kansas City and St. Charles properties, and the sale of Ameristar's Reserve property as announced. This action ends the review started in October 2000.

The following ratings were confirmed:

Senior implied rating at B1;

Existing $115 million of senior secured credit facilities at Ba3;

Senior unsecured issuer rating at B2;

$100 million senior subordinated notes at B3.

The following ratings were assigned:

Ba3 to five senior secured revolving credit and term loan facilities totalling $575 million.

The rating outlook is stable.

Moody's believes that Ameristar is acquiring the Station properties for an appropriate price, and is getting a very attractive price for its Reserve property. The acquired properties are generating net operating cash flows after normal capital expenditures which are sufficient to service the debt used to acquire them. As a result, Moody's does not expect them to put a financial strain on Ameristar's existing operations. All of the remaining properties in its portfolio have a history of stable cash flows, and all serve primarily local markets. The Missouri acquistions have historically had lower operating margins than Ameristar's other remaining properties. However, Moody's expects that Ameristar's overall operating margin will actually improve in future periods because of the sale of Reserve, which had only marginally positive operating margin. In addition, total operating margin of the Missouri properties has been improving throughout 2000.

The Missouri properties will more than double Ameristar's size. The acquisition does carry some integration risk, both in terms of re-branding the acquired properties and in terms of existing management resources. Moody's believes these risks are largely mitigated by the retention of the Missouri properties' current senior management and by the properties' favorable positions in their markets. The St. Charles property is slated to complete an expansion which was started but not completed by the current owner. Ameristar expects to largely complete this expansion by the first quarter of 2002 using the previous contractor. While the company has reason to believe the project can be completed within its $110 million budget and timeframe, any construction project carries the risk of price and time overruns, as well as change in scope. Ameristar plans to control this risk by entering into guaranteed construction contracts.

Ameristar's ratings continue to reflect high leverage, moderate operating profitability and fixed charge coverage, and the challenges of operating in a number of highly competitive environments. Expansion in Ameristar's markets is largely limited by space or regulatory constraints. Moody's expects supply and demand for gaming will remain relatively stable in Ameristar's markets over the near term. However, gaming is a discretionary activity, and there is a potential for changes in the economy to impact competitive factors. Ameristar's geographic diversity will improve as a result of this transaction.

Moody's expects that EBIT to interest will be about 1.4 times after the acquisition, and that debt will be about 4.5 times to 5.0 times EBITDA. The ratings anticipate that leverage will rise somewhat during the St. Charles construction period, and profitability for that property may decline due to marketing expenses and capacity absorption after the expansion is completed. The amortization of the credit facilities has not been determined. As a result, Moody's cannot determine total debt service coverage at this time.

The rating outlook is stable. Future ratings movement will be determined by the performance of the existing and acquired properties and by Ameristar's ability to reduce leverage.

The credit facilities totalling $575 million will be used to finance the acquisition, repay existing debt, and finance the St. Charles expansion. The facilities will consist of a five-year $100 million revolving credit facility; a 5-year $75 million revolving/term facility reserved for the St. Charles expansion; and three term loans totalling $400 million dollars with final maturities between December 2005 and December 2007. The existing bank facility will be terminated at signing. The bank facilities are guaranteed by Ameristar's operating subsidiaries and secured by essentially all the tangible and intangible assets of the company and its subsidiaries. The Ba3 rating of the credit facilities reflects Moody's opinion that asset coverage is sufficient to comfortably cover the bank debt.

Additional financing for the acquisition will be provided by an 8-year subordinated loan facility which is unrated by Moody's. As a result of its 8-year term, the loan facility does not pose a refinancing risk to Ameristar's credit structure.

New York
Tom Marshella
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
Marie Menendez
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

No Related Data.
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