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Rating Action:

Moody's confirms Century's B3 ratings, outlook negative

23 Jun 2020

New York, June 23, 2020 -- Moody's Investors Service (Moody's) today confirmed Century Casinos, Inc.'s (Century) B3 Corporate Family Rating, B3-PD Probability of Default Rating, and B3 senior secured credit facility rating. Century's Speculative Grade Liquidity rating was downgraded to SGL-3 from SGL-2. These rating actions conclude the review for downgrade initiated on March 26, 2020. The outlook is negative.

The confirmation of Century's Corporate Family Rating considers that the company's casinos in North America re-opened after approximately two months of being closed because of health and safety concerns related to the coronavirus. The re-opening alleviates a significant amount of Moody's near-term liquidity concerns, particularly with respect to cash burn rates and covenant compliance, two key factors behind Moody's decision to place Century under review for downgrade on March 26.

Despite the partial nature of Century's casino openings because of ongoing social distancing restrictions and requirements, Moody's expects initial results will be strong in terms of revenue, and given the company's substantially reduced expense base, the flow through to EBITDA will also be strong as well as higher than it has been historically under normal operating conditions. This will take the pressure off Century's need to use its current liquidity to support ongoing operations, as well as improve the likelihood that the restricted borrowing group that is the obligor the rated credit facility will meet the 4.25x net senior leverage covenant to the extent its $10 million revolving credit portion of the facility is drawn 35% or greater since borrowings above that level trigger the covenant requirement. At March-2020, the revolver was fully drawn. Because the restricted borrower that is the obligor to the rated credit facility had about $58 million of cash as of March 31, 2020, the company could pay down the revolver below the covenant trigger threshold.

The negative outlook considers the inherent uncertainty that Century and other gaming companies still face regarding gaming demand, including future efforts to contain the coronavirus that could disrupt visitation along with the pace at which consumer and commercial spending at the company's properties will recover.

While initial results from casino re-openings suggest a significant amount of pent-up demand, and possibly of longer-term benefits related to substantial reduced operating expenses, Century remains vulnerable to the social and economic challenges created by the coronavirus, including efforts to contain the coronavirus along with the potential for a slow economic recovery. As a result, the company's ability to reduce leverage within the next 12-18 months remains uncertain. Restricted group debt/EBITDA on a Moody's adjusted basis for the latest 12-month period ended March 31, 2020 was around 6.2 times, or 0.7 times of a turn higher than the 5.5 times it was prior to the coronavirus.

The downgrade of Century's Speculative Grade Liquidity rating to SGL-3 from SGL-2 reflects that the cash burn during the casino closures will reduce cash to an estimated $30 million range at the restricted borrower at the end of June 2020, and that the $10 million revolver is fully drawn.

Moody's took the following rating actions on Century Casinos, Inc.:

Ratings confirmed:

Corporate Family Rating, at B3

Probability of Default Rating, at B3-PD

Senior secured credit facility rating, at B3 (LGD 3)

Rating Downgraded:

Speculative Grade Liquidity, to SGL-3 from SGL-2

Outlook Actions:

Outlook, Changed to negative From Rating Under Review

RATINGS RATIONALE

In addition to its high leverage and the continued uncertainty created by the coronavirus, Century's B3 Corporate Family Rating reflects company's relatively small scale in terms of revenue and short track record operating as a combined company following the December 6, 2019 acquisition of two casinos in Missouri one casino in West Virginia. Annual revenue for the restricted borrowing group is only about $260 million. Positive credit consideration is given to Century's geographic diversification, albeit a modest amount, and benefit to free cash flow from low capital expenditure requirements going forward. There are no major expansion projects on the immediate horizon as Century completed several growth projects over the past two years.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be downgraded if Moody's anticipates that Century's earnings decline or liquidity deterioration will be deeper or more prolonged because of actions to contain the spread of the virus or reductions in discretionary consumer spending. The ratings could also be lowered if recovery values weaken or it appears the company will need to obtain additional capital to manage through the crisis.

A ratings upgrade is unlikely given the weak operating environment and expectation for leverage to remain high in the foreseeable future. Ratings could be upgraded if it appears that Century can achieve and maintain debt/EBITDA below 5.0x, generate meaningfully positive free cash flow, and maintain good liquidity including comfortably meeting its financial covenant requirements.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The gaming sector is one of the sectors most significantly affected by the shock given the non-essential nature of casino gaming and the sector's historically high sensitivity to consumer demand and sentiment. More specifically, Century's continued exposure to travel disruptions and discretionary consumer spending have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and makes it vulnerable to the outbreak continuing to spread.

Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Century's ratings reflect the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

The principal methodology used in these ratings was Gaming Industry published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1099757. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Century is headquartered in Colorado Springs, Colorado, is an international casino entertainment company with operations in the US, Canada, England, Argentina and Poland. The company is publicly traded (NASDAQ: CNTY) and has consolidated annual net revenues of around $420 million, although the revenue of the borrowing group responsible for servicing the company's rated $180 million credit facility is considerably smaller at about $260 million.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Keith Foley
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

John E. Puchalla, CFA
Associate Managing Director
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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