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20 Apr 2017
$395 million of rated debt affected
New York, April 20, 2017 -- Moody's Investors Service, ("Moody's") today
assigned a B3 rating to Sugarhouse HSP Gaming Prop. Mezz.
L.P.'s ("Sugarhouse") proposed $300 million
1st lien senior secured notes due 2025, and a Ba2 rating to its
proposed $95 million super-priority revolver due 2022.
The company's B2 Corporate Family Rating and B2-PD Probability
of Default rating were affirmed. Sugarhouse has a stable rating
Sugarhouse will use the proceeds from the proposed notes and revolver,
along with about $5 million of balance sheet cash, to refinance
its $240 million 6.375% 2nd lien notes due 2021 in
full and to repay amounts outstanding -- about $109 million
currently outstanding -- on its $175 million revolver
due May 2018. Sugarhouse will replace its existing revolver with
a $95 million super-priority revolver due 2022 of which
about $60 million will be drawn at closing.
Moody's views Sugarhouse's proposed refinancing as a credit
positive as it will eliminate a relatively near-term debt maturity
-- the company's existing revolver matures about only 12 months
from now -- and extend the company's overall debt maturity
profile. Additionally, given current market conditions and
replacement of 2nd lien debt with 1st lien debt, Moody's expects
the company will benefit from interest cost savings. This combined
with significantly lower projected capital expenditures -- the company
completed a $165 million expansion in May 2016 -- and related
incremental EBITDA improvement, will improve the company's
free cash flow profile and debt repayment ability.
While the new 1st lien notes will be noncallable for three years,
the company will have the option to purchase 10% of the notes each
year at a price of 103%. This, in addition to the
$60 million that is anticipated to be drawn on the revolver after
closing, will allow Sugarhouse the opportunity to delever in anticipation
of potential new competition in the Philadelphia area.
On a pro forma basis for the proposed refinancing transaction, Sugarhouse's
adjusted debt/EBITDA increases slightly, to about 5.8 times
from about 5.7 times, and is very close to Moody's
stated 6.0 times debt/EBITDA downward rating trigger. However,
the company's free cash flow, along with Moody's expectation
that Sugarhouse will use a portion of this cash flow to voluntarily repay
debt, will bring leverage down to a level more appropriate for the
company's B2 Corporate Family Rating. Moody's estimates
Sugarhouse's adjusted debt to EBITDA will drop to slightly less
than 5.0 times by the end of calendar 2017, and to slightly
above 4.0 times by the end of calendar 2018.
The B3 rating on the proposed 1st lien secured notes recognizes the potentially
significant amount of super-priority revolver debt ahead of it
in Sugarhouse's debt capital structure. Conversely,
the Ba2 rating on the super-priority revolver considers the credit
support it receives from the 1st lien secured notes below it.
$95 million super-priority revolver due 2022 -- Ba2
$300 million 1st lien senior secured notes due 2025 -- B3
Corporate Family Rating, at B2
Probability of Default Rating, at B2-PD
Outlook, maintained at Stable
Ratings to be withdrawn if/when transaction closes:
$240 million 6.375% senior secured 2nd lien notes
due 2021 -- B3 (LGD5)
Sugarhouse's B2 Corporate Family Rating reflects the company's small revenue
base, single asset profile, and direct competition from three
casinos within a 25 miles driving distance as well as from Atlantic City.
Additionally, the rating considers the risk of new supply opening
within Philadelphia in the next few years. The ratings incorporate
our expectation that Moody's adjusted debt/EBITDA, which is
around 5.8 times pro forma for the proposed transaction,
will begin to decline due to continued earnings growth from the recently
completed casino expansion and debt reduction from free cash flow.
The rating also captures good interest coverage, the company's solid
position within the Philadelphia market and the favorable population density
of the city.
The stable rating outlook reflects Moody's expectation that the
Philadelphia gaming market will grow modestly, Sugarhouse will benefit
from the opening of its casino expansion, and the company will maintain
an adequate liquidity profile.
Upward rating action is limited given the combination of Sugarhouse's
single asset profile, geographic concentration, and threat
of a new casino opening in Philadelphia. Still, ratings could
be upgraded in the longer term if Sugarhouse can maintain debt/EBITDA
below 4.0x while absorbing the expected decline in earnings caused
by potential new supply.
Ratings could be downgraded if monthly gaming revenues exhibit a sustained
material decline. Additionally, Sugarhouse could be downgraded
if debt/EBITDA is sustained above 6.0 times or if liquidity materially
The principal methodology used in these ratings was Global Gaming Industry
published in June 2014. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
Sugarhouse owns the Sugarhouse Casino located in Philadelphia, PA
on the Delaware River waterfront. The company is majority-owned
and controlled by Neil Bluhm, his family, and Greg Carlin.
Through various subsidiaries and joint ventures, entities related
to Neil Bluhm and Greg Carlin also have an interest in Rivers Pittsburgh
Borrower, L.P. (B2 stable), the Rivers Casino
Des Plaines (not rated), located outside of Chicago, IL,
and the Rivers Casino Schenectady (not rated), located outside of
Albany, NY, which opened to the public on February 8,
2017. Sugarhouse generated net revenue of $306 million for
the last 12 month period ended Dec. 31, 2016.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Janice Hofferber, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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