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Global Credit Research - 27 Jan 2011
New York, January 27, 2011 -- Moody's Investors Service today assigned a B2 Corporate Family Rating
(CFR) and a B3 Probability of Default Rating (PDR) to Herbst Gaming,
LLC (Herbst). A B2 was assigned to the company's $350
million senior secured term loan due 2015. The rating outlook is
New Ratings Assigned:
Corporate Family Rating at B2
Probability of Default Rating at B3
$350 million senior secured term loan due 2015, at B2 (LGD
Herbst's B2 CFR considers the company's significant exposure
to Nevada gaming markets and its high leverage. This subjects the
company to greater risks than a gaming company that operates in a more
stable gaming market and is more geographically diverse. The ratings
are supported by the solid performance of the company's Midwest
casino properties and the company's good liquidity profile.
Although Herbst does not have a committed bank revolving credit facility
at this time, it does have about $100 million of excess cash
that should be sufficient to help fund short term working capital or modest
capital expenditure needs.
Approximately 65% of Herbst's consolidated net revenue and
35% of its property-level EBITDA comes from the company's
Nevada casinos and route operations. Nevada was hit extremely hard
by the recent recession, continues to have one the highest unemployment
rates in the U.S., and will likely be one of the slowest
gaming markets to recover.
Herbst's debt/EBITDA is high at approximately 5.0 times.
While some leverage reduction is possible, it's not expected
to be material in the next two years. The company has experienced
some recent improvement in its Nevada casino segment, but that was
largely due to cost cutting initiatives. While effective in mitigating
some revenue risk, Moody's does not expect that these cost
cutting initiatives alone will improve consolidated EBITDA enough to materially
change the company's leverage profile in the foreseeable future.
Herbst's Midwest casinos' revenue, EBITDA and EBITDA
margin have improved during the recession. Moody's expects
this trend to continue in the foreseeable future as the gaming demand
environment in Iowa and Missouri improves further and the competition
in these markets remains limited.
Herbst's B2 CFR is one notch higher than its B3 PDR, reflecting
the utilization of a family recovery rate of 65%. The higher
than average family recovery rate reflects Herbst's all bank capital
structure, which in Moody's view gives lenders a better ability
to take prompt action if the company's credit profile deteriorates,
thereby providing greater-than-average recovery values.
The stable rating outlook reflects Moody's anticipation that earnings
improvement at Herbst's Midwest casinos will offset continued earnings
pressure at its Nevada casinos and route operations. As a result,
the company will be able to maintain credit statistics adequate for the
current rating. The stable outlook also incorporates Moody's
opinion that Herbst has the liquidity to absorb further and moderate decline
Ratings could ultimately be considered for an upgrade if Herbst's operating
performance improves and EBIT/interest expense exceeds 2.0 times
and debt/EBITDA drops below 4.0 times. However, the
company's small scale and limited diversification would likely limit the
degree of any ratings improvement. Ratings could be downgraded
if operating performance or liquidity deteriorates for any reason.
Additionally, if debt/EBITDA is not maintained below 5.5
times and EBIT/interest expense drops below 1.25 times, there
could be negative pressure on the ratings or rating outlook.
This is a first time rating on Herbst Gaming, LLC.
The principal methodologies used in this rating were Global Gaming published
in December 2009, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Herbst Gaming, LLC (Herbst) owns and operates casinos in Nevada
and the Midwest, and slot routes including approximately 6,100
machines throughout Nevada. Other revenue segment includes gasoline
and convenience store sales, lottery ticket sale fees, ATM
fees, payphone charges, rental income and other miscellaneous
items. Herbst Gaming, LLC was formed in Nevada on March 29,
2010 to acquire substantially all of the assets of Herbst Gaming Inc.
pursuant to the plan of reorganization under Chapter 11. The company
generates annual net revenues of about $630 million.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
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Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B2 CFR and stable rating outlook to Herbst Gaming, LLC
250 Greenwich Street
New York, NY 10007
No Related Data.
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