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17 Sep 2007
Moody's downgrades Cirsa's CFR to B2; stable outlook
Madrid, September 17, 2007 -- Moody's Investors Service has today downgraded to B2 from B1 the corporate
family rating ("CFR") of Cirsa Gaming Corporation, S.A.
("Cirsa" or "the company"). Concurrently,
Moody's downgraded to B2 from B1 the rating of the EUR270 million
Senior Notes due 2014 issued by Cirsa Finance Luxembourg S.A,
and to B3 from B2 the rating of the EUR230 million Senior Notes due 2012
issued by Cirsa Capital Luxembourg S.A. The outlook on all
ratings is stable.
The downgrades conclude the rating review initiated by Moody's on
30 May 2007, following the announcement that the company had entered
into a strategic arrangement with Casino Club (a leading gaming operator
in Argentina which owns and operates 12 casinos and 17 gaming arcades
throughout the country) with respect to the operation and future development
of their casino operations in the key markets of Buenos Aires and Rosario.
Specifically, Cirsa and Casino Club, through its subsidiary
Ciesa, have entered into a joint venture agreement ("Unión
Transitoria de Empresas" or "UTE") through which Ciesa
committed to invest up to $120 million over the next three years
to expand the Buenos Aires casino business, while each of the two
companies will have a 50% economic interest in the profits of the
UTE. Cirsa will retain the ownership of all of its existing properties,
including the licenses. In Rosario, Cirsa acquired a 50%
interest in the Casino de Rosario concession for $20 million,
which amounts to approximately half of the $40 million of funds
invested by Casino Club to date. This planned casino complex is
currently under construction and is expected to commence operations in
the first half of 2009 with 2,000 slot machines and 70 gaming tables.
The downgrade reflects the impact of these agreements on the financial
profile of the company as well as the level of execution risk and complexity
of the deals. In Moody's opinion, the transaction weakens
the financial profile of the company over the short term given that Cirsa
will exchange a 50% share of the profits from its most important
asset (Cirsa's two river boat casinos in Buenos Aires generated
approximately 25% of the consolidated EBITDA of the group in 2006)
for a 50% interest in the Casino de Rosario concession, which
is not expected to contribute significantly to the group's EBITDA
until year-end 2009 at the earliest. In addition,
given that Cirsa's future investments in the Casino de Rosario concession
will be funded through cash flows generated by the Buenos Aires casinos,
Moody's expects that the company will not be upstreaming any cash
flows from Argentina into the holding company until there is some meaningful
positive EBITDA contribution from Casino de Rosario. Moody's
also notes that, although the Casino de Rosario and the expansion
of the Buenos Aires casino business have strong growth prospects,
there is a significant execution risk involved in the construction and
operation of these new assets.
More positively, Moody's recognizes that, as a result
of these agreements, Cirsa will reduce the concentration of profitability
on a single asset (the Buenos Aires riverboat casinos) with a limited
investment. In addition, Moody's acknowledges that
this agreement between Cirsa and its main competitor in Argentina reduces
the competitive threat in that market and removes the legal uncertainties
related to Cirsa's obligation to build a new riverboat casino under
its existing license.
The rating downgrade also factors Cirsa's acquisition of a 75%
equity stake in Winner Group S.A., a gaming operator
domiciled in Colombia which operates 21 casinos with more than 100 tables
and around 2,250 slot machines. The company has paid EUR60
million for the 75% stake (implying an EBITDA multiple of 4.6x)
by cancelling EUR7.3 million from the existing intercompany debt
balance between Cirsa and Nortia (Cirsa's principal shareholder).
The remaining amount (EUR53 million) has been funded through long-term
bank financing. Although Winner is an established and profitable
asset with an EBITDA margin of around 50%, this transaction
has a marginal negative impact on Cirsa's expected credit metrics
for year-end 2007 and increases the business risk derived from
operating in Colombia.
Following the agreements affecting the EBITDA contribution of the casino
business in Argentina and the impact of the debt-financed acquisition
in Colombia, Moody's expects Total Debt / EBITDA (on an adjusted
basis) for year-end 2007 to approach 5.0x, which is
Moody's maximum leverage guidance for a B1 rating. Moody's adjusted
debt includes a EUR359 million adjustment for operating leases and does
not include cash balances. The transactions are therefore likely
to delay the improvement in credit metrics that Moody's had factored
into its B1 Corporate Family rating and the expected credit metrics are
now more commensurate with a B2 rating.
The B2 rating therefore reflects the increased complexity of the corporate
structure of the group. Nevertheless, Moody's notes
that the company's operating performance continues to improve,
particularly in the Slots division, where H1 EBITDA has increased
by 52% (from EUR 27.2 million in H1 2006 to EUR 41.4
million in H2 2007), and has helped to offset the decline experienced
by the Casino division as a result of the suspension of operations in
the Buenos Aires casinos for more than five weeks due to a dispute between
two labor unions.
The rating could come under downward pressure if the company's leverage
were to approach 6x on an adjusted basis. Conversely, upward
rating pressure will depend on the company's ability to operate
under a financial profile consistent with credit metrics such as Debt/EBITDA
(as adjusted by Moody's) below 4.25x on a sustainable basis.
The CFR downgrade has also led to a one-notch downgrade of the
EUR270 million Senior Notes due 2014 issued by Cirsa Finance Luxembourg
S.A (from B1 to B2) and the EUR230 million Senior Notes due 2012
issued by Cirsa Capital Luxembourg S.A. (from B2 to B3).
In Moody's view, the value of the guarantee from Casino de
Buenos Aires S.A. has weakened to some extent as a result
of the agreements in Argentina, given that the cash flows generated
by the existing two riverboats will be invested in the Casino de Rosario
concession, which will not be included as a specific guarantor of
the notes. However, the one-notch differential between
the two notes has been maintained, given that Cirsa will retain
ownership of ownership of all of its existing properties in Buenos Aires,
including the licenses and its 50% stake in the Casino de Rosario
concession will be held through Casino de Buenos Aires S.A.
Therefore, the 2014 notes will continue to benefit from additional
guarantees vis-a-vis the 2012 notes, which
are not guaranteed by Casino de Buenos Aires S.A. Moody's
notes however, that any further weakening of the value of this guarantee
could cause the removal of the notching between the 2012 and the 2014
The following ratings were downgraded today:
- Corporate Family Rating: downgraded to B2 from B1
- EUR230 million Senior Notes due 2012 issued by Cirsa Capital
Luxembourg S.A. downgraded to B3 from B2
- EUR270 million Senior Notes due 2014 issued by Cirsa Finance
Luxembourg S.A. downgraded to B2 from B1
Headquartered in Terrassa, Spain, Cirsa is a leading Spanish
gaming company, with substantial operations in Latin America.
For the 12 months ending in December 2006, Cirsa had revenues (net
of prizes and participations) of EUR1.010 billion and EBITDA of
Corporate Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
David G. Staples
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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