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Rating Action:

MOODY'S CONFIRMS MANDALAY RESORT GROUP'S Ba1 SENIOR IMPLIED RATING AND CHANGES THE RATING OUTLOOK TO NEGATIVE.

12 Dec 2001
MOODY'S CONFIRMS MANDALAY RESORT GROUP'S Ba1 SENIOR IMPLIED RATING AND CHANGES THE RATING OUTLOOK TO NEGATIVE.

Approximately $ Million of Debt Securities Affected.

New York, December 12, 2001 -- Moody's Investors Service confirmed the Mandalay's Ba1 senior implied rating but changed the rating outlook to negative reflecting the increased risk of earnings volatility due to the weak economy, lingering safety concerns regarding air travel, as well as the uncertain politcal environment related to the potential for more terrorist attacks, and the ongoing war. Additionally, the company has been aggressively repurchasing its stock and has growth plans that will use up the majority of the its free cash flow. This completes the review of Mandalay's ratings that began on September 25, 2001.

Ratings Confirmed:

Senior unsecured debentures and notes at Ba2.

Senior subordinated debentures and notes at Ba3.

Multiple seniority shelf -- Senior secured at (P)Baa3, senior unsecured at (P)Ba2, senior subordinated at (P)Ba3, and subordinated at (P)B1.

Commercial paper at Not Prime.

Senior Implied at Ba1

Senior Unsecured Issuer Rating at Ba2.

Circus Finance I and II:

Guaranteed Trust Preferred shelf at (P)Ba3

Prior to September 11th, Mandalay's earnings and cash flow were relatively flat versus the prior year, and the company had deployed the majority of its free cash flow for share repurchases and capital expenditures as rather than debt reduction. Since September 11th, business conditions on the Las Vegas strip have improved somewhat from the lows experienced initially, but are still weak and are likely to remain so into 2002 due to the economic downturn, as well as lingering safety concerns regarding air travel and the war on terror. Additionally, Mandalay is likely to proceed with its plans to begin construction of a new convention center in 2002. Assuming little or no growth in the company's 2002 earnings, Moody's still expects the company's cash flow will be sufficient to fund its capital expenditures. However, cash flow may not be sufficient to fund aggressive share repurchase activity. We note that the company has committed about $100MM of its future cash flow toward share repurchases in the form of an equity forward contract that matures in the first quarter of 2002. Therefore, the ratings could be lowered if earnings are weaker than expected, or if share repurchases and capital expenditures exceed cash flow resulting in any weakening of current debt protection measures.

Mandalay has $1.25 billion in committed bank facilities comprised of a $250 million term loan that is non-amortizing and fully funded, a $150 million capital markets term loan that is fully drawn, and that must be repaid with the proceeds of any new debt issuances, and a $850 million revolver that has about $400 million currently available. All three facilities mature on August 21, 2006. Mandalay has obtained majority consent from its bank group to an amendment that relaxes the company's financial covenants. Moody's believes the company has sufficient availability under its revolver (about $450 million) to support its operations in the event that earnings are lower than expected.

Mandalay's ratings reflect the company's portfolio of gaming properties that span various price points, and which are located in several jurisdictions.

Geographic diversity is improving with the opening of its joint venture casino in Detroit, Michigan. This joint venture, MotorCity, has performed well since the opening of the last casino, Greektown. Nevertheless, the ratings take into account Mandalay's reliance on Nevada and Las Vegas in particular. The company also has a high dependence on room and other non-gaming sources of revenues that are considered to be more vulnerable to cyclicality than gaming revenues. We note that the company's joint ventures (Grand Victoria, Monte Carlo and Silver Legacy) are all generating positive cash flow.

Mandalay Resort Group, headquartered in Las Vegas, owns and operates 11 properties in Nevada, has a 50% interest in two other Nevada properties, a hotel/casino in Tunica, Mississippi, a 50.5% interest in a casino in downtown Detroit, and a 50% interest in a riverboat in Elgin, Illinois.

New York
Angela Jameson
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

No Related Data.
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