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Global Credit Research - 22 Jul 2010
Madrid, July 22, 2010 -- Moody's Investors Service has today assigned a provisional (P)B2 rating
to the proposed EUR100 million senior notes due 2015 to be issued by Codere
Finance (Luxembourg) S.A. on the same terms as Codere's
previously issued EUR660 million notes, rated B2. Concurrently,
Moody's has changed the outlook to stable from negative on the B1
corporate family rating (CFR) and probability of default rating (PDR)
of Codere S.A. as well as the existing B2-rated notes
after affirming all ratings.
Moody's issues provisional instrument ratings in advance of the final
sale of securities and these ratings reflect Moody's preliminary credit
opinion regarding the transaction only. Upon a conclusive review
of the final documentation, Moody's will endeavour to assign a definitive
rating to the notes. A definitive rating may differ from a provisional
"Moody's decision to change the outlook on Codere to stable
from negative reflects the stabilization in the company's operating
performance, which has allowed Codere to maintain an adequate financial
profile and credit metrics for the B1 rating category," says
Iván Palacios, a Moody's Vice President -- Senior
Analyst and lead analyst for Codere.
"In addition, the company's liquidity profile and headroom
under covenants has improved following the recent refinancing of the company's
revolving credit facility and the elimination of the Qualifying Country
Covenant included in the original facility agreement."
"The change in outlook also reflects that Codere's geographically
diversified operations as well as its cost-cutting and capex efficiency
efforts are allowing the company to mitigate the impact on its Spanish
operations of the very challenging domestic macroeconomic environment
with the stronger performance of its businesses in Argentina and Mexico,"
adds Mr. Palacios.
Moody's believes that, from H2 2010 onwards, Codere's
operating performance will benefit from the growth in machine park as
well as the technological upgrade of machines in Argentina, the
recovery in its Mexican operations to more normalized levels following
the impact of the smoking ban implemented in Q3 2009, and the new
operation of Video Lottery Terminals in Italy. Moody's believes
that these factors will drive revenue and EBITDA improvements, which
support the stabilization of the company's financial profile and
credit metrics at the B1 rating level.
The stabilized rating outlook on Codere also takes account of the recently
announced transaction with Grupo Caliente relating to the restructuring
of its contractual relationship with Codere, as well as the planned
acquisition of Thunderbird Resorts Inc.'s 63.6%
stake in six casinos in Panama. Moody's views both transactions
as neutral to the rating, in light of the marginal impact that they
will have on the consolidated credit metrics.
While the transaction with Grupo Caliente will allow Codere to become
the majority owner (67.3% stake) of all of its gaming licenses
and halls in Mexico and benefit from their incremental EBITDA generation,
the acquisition of the equity stakes in the casinos in Panama will strengthen
Codere's position in this market and create synergies with its existing
operations in the country.
Nevertheless, these considerations are offset by concerns related
to the complexity of the transaction with Grupo Caliente, which
involves capitalizing a portion of Caliente's obligations to Codere
worth USD171 million and injecting USD75 million in order to repay Caliente's
outstanding tax liabilities.
Upon the completion of these two transactions and the expected improvement
in operating performance, Moody's expects Codere's overall
leverage metrics to remain at current levels of Total debt/EBITDA (as
adjusted by Moody's) of around 4.0x, and free cash flow generation
to be positive. The stabilization of Codere's outlook assumes
that these transactions will not represent a drain on the group's
future cash flow and reflects the expectation that Codere will execute
its business plan as outlined.
The proceeds from the proposed EUR100 million bond issuance will be primarily
used to repay amounts outstanding under Codere's revolving credit
facility and other long-term debt obligations. A successful
completion of the bond issuance will therefore improve the liquidity profile
of the company by increasing availability under the revolving credit facility.
According to Moody's, the ratings could come under downward
pressure if adjusted leverage trends towards 4.5x as a result of
a material weakening in operating performance or a change in the company's
financial policy. Ratings could also come under pressure if the
company faces a significant reduction in liquidity or if it experiences
stress on its financial covenants.
Moody's has tightened the guidance for Codere's leverage at
the B1 rating to reflect (1) the increase in business risk resulting from
Codere's progressive shift from the relatively low-risk and
mature European operations to the more volatile and higher-growth
Latin American operations, which are now contributing 77%
of consolidated EBITDA generation; and (2) the increased complexity
in the group's structure following the Caliente and Thunderbird
transactions, as the group will be fully consolidating these two
entities, while its ownership stake is 67.3% and 63.6%
Upward pressure on the ratings is likely to be constrained by (1) the
company's appetite for expansion; (2) the increasing proportion
of cash flows generated in emerging markets; and (3) the presence
of the PIK note at the shareholder level.
The last rating action on Codere was implemented on 4 October 2008,
when Moody's changed the outlook on the company to negative.
The principal methodology used in rating Codere was Moody's "Global Gaming
Industry Rating Methodology", published in December 2009 and available
on www.moodys.com in the Ratings Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found in the Rating Methodologies sub-directory on Moody's
Codere is a Spanish-based gaming operator with a focus on gaming
machines, bingo halls, off-track betting facilities,
casinos and horse race tracks. The company has operations in Spain,
Argentina, Mexico, Italy and several other Latin American
countries. In the 12 months ending March 2010, Codere generated
revenues of EUR968 million and EBITDA of EUR230 million.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns (P)B2 rating to Codere's bond issue; changes outlook to stable from negative
No Related Data.
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