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Rating Action:

Moody's assigns a B3 Corporate Family rating to AC Ocean Walk, LLC

08 Dec 2017

Approximately $255 million of rated debt affected

NOTE: On December 11, 2017, the press release was corrected as follows: In the second paragraph, the fifth sentence was changed to “The second lien term loan will pay interest in kind (PIK) through 6/30/19; thereafter at 50% cash/50% PIK when total leverage is between 4.5x-5.0x and 100% cash when leverage drops below 4.5x.” Revised release follows.

New York, December 08, 2017 -- Moody's Investors Service ("Moody's") today assigned a B3 Corporate Family rating and B3-PD Probability of Default rating to AC Ocean Walk, LLC (AC Ocean Walk). Moody's also assigned a B2 rating to the proposed $175 million five year first lien term loan, a Caa2 rating to the proposed 5.5 year $75 million second lien PIK term loan, and Ba3 to the proposed four year $5.0 million first lien super priority revolver.

Proceeds from the proposed term loans along with $125 million of common equity will finance the acquisition of AC Ocean Walk ($200M) (formerly known as Revel Atlantic City), and provide funds for pre-opening ($56M) and renovations costs (including gaming chips, cage cash, and consumable inventories) ($68M), an interest reserve ($25M), working capital and fees and expenses of the transaction ($26M). The term loans and revolver will be guaranteed by the company's immediate parent, AC Beachfront, LLC. The first lien term loan and super priority revolver will be secured by all assets, (including capital stock of subsidiaries) of the borrower and guarantors. The revolver will have a first payment priority ahead of the first and second lien term loans. The second lien term loan will pay interest in kind (PIK) through 6/30/19; thereafter at 50% cash/50% PIK when total leverage is between 4.5x-5.0x and 100% cash when leverage drops below 4.5x. The assigned ratings are subject to review of final documentation.

Assignments:

..Issuer: AC Ocean Walk, LLC

.... Probability of Default Rating, Assigned B3-PD

.... Corporate Family Rating, Assigned B3

....Senior Secured Term Loan, Assigned B2(LGD3)

....Senior Secured Super Priority Revolving Credit Facility, Assigned Ba3(LGD1)

....Senior Secured 2nd Lien PIK Term Loan, Assigned Caa2(LGD5)

Outlook Actions:

..Issuer: AC Ocean Walk, LLC

....Outlook, Assigned Stable

RATINGS RATIONALE

AC Ocean Walk, LLC's B3 Corporate Family rating is constrained by execution risk associated with re-opening a large Atlantic City casino hotel resort that previously filed for bankruptcy, earnings concentration in a single property, concerns about Atlantic City's ability to grow and absorb new supply, and high leverage upon opening. Another casino property is expected to reopen around the same time as AC Ocean Walk, (collectively, a 35% increase in slot and table positions). This large supply increase will result in above average promotional and marketing spend and slow the time it takes the property to ramp-up operations and attain its fair share. Between 2014 and 2016, five Atlantic City casinos closed as gaming in Pennsylvania and the economic downturn took its toll on the market.

AC Ocean Walk benefits from a much improved cost and capital structure and is being acquired for $200 million -- well below the estimated $2.6 billion cost to build. The new owners will invest another $175 million to re-open in May 2018 for a total invested capital of $375 million. The property is expected to slowly capture its fair share of the market given the quality of the property -- (originally opened in 2012), breathe of project offerings and a revamped operating strategy aligned with the demands of patrons in the market. A key credit positive is the company's good liquidity with an interest reserve of approximately $25 million to cover cash interest through 6/30/19 (about 12 months post the expected May 2018 opening), a $5 million four year super-priority revolver, and opening cash balance of $15 million. Within 12 months of opening, Moody's expects AC Ocean can ramp up operations to cover its cash interest, mandatory debt amortization, and maintenance capital spending and begin to build cash. However, we estimate first year total debt/EBITDA will be high at approximately 7.0x.

The stable outlook reflects sufficient liquidity to fund pre-opening and renovation costs, an interest reserve that extends approximately 12 months post opening and our expectation the property can ramp up operation to cover cash needs within 12 months of opening.

The ratings could be downgraded if Atlantic City gaming revenue trends show signs of deterioration or inability to absorb new supply, if post opening the company's monthly gaming revenues are below $20 million, or if EBITDA does not track towards $40 million or liquidity deteriorates. Ratings could be upgraded if the Atlantic City market absorbs the new supply and debt/EBITDA and EBIT/total interest stabilizes around 4.5x, and 2.25x, respectively, and the company maintains good liquidity.

AC Ocean Walk, LLC is privately owned by AC Beachfront, LLC which in turn is owned by TEN RE AC NJ. TEN RE is owned by Mile High Dice, LLC (71.8%; controlled by Bruce Deifik) and Winding Trail Properties, LLC (14.75%; controlled by Frank Ruocco) and other minority investors. AC Ocean Walk will operate 100 gaming tables, 2,000 slot machines, 1,399 hotel rooms, pools, a spa, night clubs,and 13 restaurant options. The property is expected to reopen in the second quarter of 2018.

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.

REGULATORY DISCLOSURES

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 review.

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 the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Peggy Holloway
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Janice Hofferber, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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