Approximately $150 million of rated debt affected.
New York, March 14, 2011 -- Moody's Investors Service today assigned a Caa1 Corporate Family
Rating and Caa1 Probability of Default Rating to AGS Holdings, LLC.
Moody's also assigned a Caa1 rating to the company's proposed
five year $150 million second lien note offering. The rating
outlook is stable.
The proceeds from the second lien note offering will be used to fully
repay approximately $134.4 million of debt at AGS LLC --
a wholly-owned direct subsidiary of AGS Holdings --
fund AGS Holdings' future working capital needs, and pay transaction
costs. The second lien notes will be guaranteed by domestic subsidiaries
and secured by all assets but will be structurally subordinated to a $30
million first lien revolving credit facility that is expected to be put
in place at a later date.
Moody's also affirmed AGS, LLC's existing ratings,
including its Caa2 Corporate Family rating. Assuming the AGS Holdings
second lien note transaction closes, AGS, LLC's will
no longer have any outstanding debt and its ratings will be withdrawn.
By refinancing AGS LLC's existing debt in full, AGS Holdings
avoids the need to rely on a sponsor equity cure to avoid a likely technical
covenant default under AGS LLC's bank credit facilities.
If the proposed transaction does not close, Moody's expects the
sponsors to provide the equity cure. Nevertheless, if the
proposed transaction does not close, AGS, LLC's existing
ratings could be lowered given the company's need to amend its existing
bank agreement, and address its weak liquidity.
New AGS Holdings, LLC ratings assigned:
AGS Holdings, LLC
Corporate Family Rating at Caa1
Probability of Default Rating at Caa1
$150 million secured second lien notes due 2016 at Caa1 (LGD 4,
57%)
Stable rating outlook
AGS, LLC ratings affirmed and to be withdrawn once proposed transaction
closes:
Corporate Family Rating at Caa2
Probability of Default Rating at Caa3
Senior secured delayed draw term loan at Caa2 (LGD 3, 34%)
Senior secured revolving credit facility at Caa2 (LGD 3, 34%)
Senior secured term loan at Caa2 (LGD 3, 34%)
Stable rating outlook
RATINGS RATIONALE
AGS Holdings, LLC's Caa1 Corporate Family Rating reflects
its very small scale and significant geographic and customer revenue concentration.
Annual revenues are less than $100 million. The ratings
acknowledge that the company's primary competitors are larger and
better capitalized, and that there is a significant reliance on
a key third party supplier and a few key managers for game development.
The ratings are supported by the company's moderate leverage --
debt/EBITDA is about 4.6 times -- and Moody's view that
gaming demand has shown signs of stability which should enable AGS to
grow its installed base, revenue, and EBITDA, albeit
modestly.
The stable rating outlook considers AGS Holdings, LLC good liquidity
profile. Pro forma for the new $150 million second lien
note offering, AGS Holdings, LLC will have approximately $16
million, no long-term scheduled debt maturities, and
no material maintenance-type financial covenants. The company
plans to put in place a $30 million first lien revolving credit
facility -- and will be allowed to do so by the second lien indenture
-- but it is not a condition to closing with respect to the proposed
second lien notes. AGS Holdings, LLC will, however
have cash on hand of approximately $16 million, a portion
of which may be needed to fund working capital and planned investments.
AGS Holdings, LLC's ratings could be downgraded if the company
is not able to grow its installed base and increase EBITDA, or if
its liquidity profile deteriorates for any reason. The company's
ratings could be upgraded if its new management team can successfully
execute its growth strategy and increase revenues and earnings.
AGS Holdings, LLC designs, manufactures, and operates
Class II and Class III gaming machines principally for the Native American
casino market. The company has an installed base of about 7,700
machines in approximately 127 gaming facilities (principally Native American
casinos across Oklahoma), 10 other US states and Mexico.
AGS is owned by affiliates of Alpine Investors II, LP.
The principal methodologies used in this rating were Global Business &
Consumer Service Industry Rating Methodology published in October 2010,
and Loss Given Default for Speculative-Grade Non-Financial
Companies in the U.S., Canada and EMEA published in
June 2009.
REGULATORY DISCLOSURES
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
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Peggy Holloway
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Keith Foley
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
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New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns Caa1 CFR to AGS Holdings LLC; new 2nd lien notes rated Caa1