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Rating Action:

MOODY'S RATES AMERISTAR'S PROPOSED SUB NOTES AT B3, AFFIRMS Ba3 BANK RATING

16 Jan 2001
MOODY'S RATES AMERISTAR'S PROPOSED SUB NOTES AT B3, AFFIRMS Ba3 BANK RATING

Approximately $875 Million of Debt Rated

New York, January 16, 2001 -- Moody's Investors Service assigned a rating of B3 to the proposed $300 million guaranteed senior subordinated debt issue of Ameristar Casinos, Inc., and affirmed the following debt ratings of Ameristar:

Senior implied rating of B1;

Senior secured revolving credit and term loan facilities totaling $575 million at Ba3;

Senior unsecured issuer rating at B2.

Ameristar acquired the Missouri properties of Station Casinos in December 2000. The proposed debt issue is repaying an 8-year subordinated loan facility used to close the purchase. The subordinated loan facility had been unrated by Moody's.

The ratings reflect largely the risks and benefits of the Missouri acquisitions, which doubled Ameristar's size. Moody's believes that Ameristar acquired Station's properties for an appropriate price, and will receive a very attractive price from Station Casinos for its Reserve property. Moody's believes that the acquired properties are generating net operating cash flows after normal capital expenditures which are sufficient to service the debt used to acquire them. Ameristar's remaining properties have a history of stable cash flows. All of the company's properties are geared to serve primarily locals markets. Although the Missouri properties have lower operating margins than Ameristar's properties, Moody's expects that Ameristar's overall margins will improve in future periods because of the sale of Reserve, which had only marginally positive operating margins. Ameristar's geographic diversity will improve as a result of this transaction.

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' senior management and by the properties' favorable positions in their markets. The St. Charles property is slated to complete an expansion which was started by the prior 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.

The sale of Reserve has not yet closed. The buyer, which operates a number of casinos in Nevada, has been approved by the Nevada State Gaming Control Board and is waiting to receive a license to operate Reserve. Moody's anticipates the sale will close prior to the sale of the bonds. Ameristar's availability under its revolving credit line is very thin until the sale closes. The sale of Reserve will be used to permanently repay $50 million of secured debt, and will free up about $10 million under Ameristar's revolver.

Ameristar's ratings continue to reflect high leverage; moderate operating profitability and fixed charge coverage; thin excess liquidity; the risks inherent in completing the expansion of the St. Charles property and the potential to changes to the current plan; and the challenges of operating in a number of highly competitive environments. 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.

In the short term, Moody's expects cash flow could be impacted by weather or competitive factors. Recent winters have been relatively mild, and revenues for many casinos in the Northern U.S. were negatively impacted by adverse weather during the recent holiday period. Moody's expects Ameristar's EBIT to interest will be about 1.4 times after the acquisition, and that debt will be about 4.5 times to 5 times EBITDA. The ratings anticipate that debt will rise somewhat during the St. Charles construction period, and that profitability for that property may decline due to marketing expenses and capacity absorption after the construction has been completed.

The rating outlook remains stable. Future ratings movement will be determined by the performance of the existing and acquired properties and by Ameristar's ability to manage the St. Charles construction and reduce leverage over the medium to longer term.

The B3 rating of the senior subordinated notes reflects their contractual subordination to senior debt of Ameristar and its operating subsidiaries. The notes are guaranteed on a senior subordinated basis by the existing operating companies, and noteholders position in the capital structure are protected by anti-layering provisions affecting the issuer and its subsidiaries. Other customary covenants include limitations on debt incurrance; limitations on use of proceeds from asset sales; and change of control provisions. The notes also contain a provision which requires redemption of notes held by anyone who may be required by local gaming authorities to obtain a gaming license and is unable to do so.

Ameristar Casinos, Inc., headquartered in Las Vegas, Nevada, operates five casinos serving Council Bluffs/ Omaha, Kansas City, St. Charles/St. Louis, Vicksburg, and Jackpot, Nevada.

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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