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Rating Action:

Moody's downgrades Codere's CFR to Caa3; negative outlook

20 May 2013

Madrid, May 20, 2013 -- Moody's Investors Service has today downgraded to Caa3 from Caa2 the corporate family rating (CFR) and to Caa3-PD from Caa2-PD the probability of default rating (PDR) of Codere S.A.

Concurrently, Moody's has downgraded to Ca from Caa3 the ratings on Codere Finance (Luxembourg) S.A.'s EUR760 million worth of 8.25% senior notes due 2015 and $300 million worth of 9.25% senior notes due 2019. The outlook on all ratings remains negative.

RATINGS RATIONALE

"We have downgraded Codere's CFR to Caa3 because we believe that the company's risk of default before the end of June is very high given that it has not yet refinanced its EUR60 million senior facility, which matures on 15 June and which is vital in enabling the company to continue meeting its obligations at the corporate level," says Iván Palacios, a Moody's Vice President - Senior Credit Officer and lead analyst for Codere.

Before the end of June, Codere will not only have to refinance the senior facility, but also AR$200 million worth of bank loans in Argentina. Also on 15 June, the company will have to pay the semiannual coupon on the euro-denominated notes, which amounts to around EUR31.4 million. Moody's believes that the liquidity sources currently available at corporate level will not be sufficient to cover the repayment of the drawings under the senior facility (EUR30 million outstanding), the notes' coupon payment and Codere's headquarter expenses.

Moody's notes that even if Codere manages to withstand liquidity stress by the end of June, the company faces the medium-term challenge of having to refinance the EUR760 million worth of notes due June 2015 in the context of a potentially still uncertain operating environment in Argentina. In addition, Moody's believes that this refinancing could be complicated by the overhang that results from the Payment-In-Kind (PIK) loan issued by Masampe Holding B.V., a special purpose vehicle that holds a controlling stake in Codere, and which comes due in December 2015.

In its Q1 2013 results release, Codere said that it had engaged Perella Weinberg Partners to assist the company in the negotiation of its upcoming maturities and advise on its broader capital structure. In Moody's view, it is unlikely that Codere will be able to avoid restructuring its balance sheet, which could result in a loss for current debtholders, given the company's inadequate liquidity position and its unsustainable capital structure. Such a debt restructuring could be considered by Moody's a distressed exchange and, by implication, a default under the rating agency's methodologies.

While liquidity concerns are the primary driver of the rating downgrade, Moody's notes that Codere's year-to-date operating performance has also been weaker than expected. In fact, Codere lowered its full-year EBITDA guidance by around EUR15 million (to a range of EUR270 million-EUR285 million) compared with the previous expectations provided at the end of February. This was primarily as a result of temporary hall closures in Mexico and the underperformance of the company's operations in Uruguay and Colombia. If the closed Mexican halls are not reopened in the second half of the year, the company's full-year EBITDA could be lower than the EUR270 million estimate.

Codere's Caa3 rating reflects the company's weak liquidity, high risk of default in the near term and high adjusted leverage, which stood at around 5.4x as of December 2012. The rating also reflects the company's exposure to emerging market risks, as well as its position as one of the leading gaming operators in Latin America, Italy and Spain, and its diversification in terms of business lines, gaming assets and geographies.

The negative outlook on the ratings reflects Codere's uncertain operating and financial prospects in light of its inadequate liquidity position.

WHAT COULD CHANGE THE RATING UP/DOWN

Moody's would consider further downgrading the ratings if the company defaults on the payment of the upcoming debt maturities and bond coupon in June. Moody's would also consider downgrading the ratings if Codere announces a debt restructuring involving a discounted offer on debt components of the company's capital structure, which could be considered by Moody's a distressed exchange and, by implication, a default under the rating agency's methodologies.

In view of today's action and the negative rating outlook, Moody's does not currently anticipate upward rating pressure. However, the rating agency could change the outlook on the ratings to stable if Codere successfully refinances in a timely manner its senior facility and other 2013 debt maturities.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was the Global Gaming published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Codere is a multinational gaming operator engaged in the management of gaming machines, machine halls, bingo halls, horse racing tracks, casinos and sports betting locations in Latin America, Italy and Spain. As of December 2012, Codere managed 56,474 gaming machine seats, 186 gaming halls (including machine halls, bingo halls with machines, machine halls at racetracks and casinos), 1,379 betting locations and three horse racing tracks. In 2012, Codere generated operating revenue of EUR1.664 billion and EBITDA of EUR305 million.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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.

Ivan Palacios
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Codere's CFR to Caa3; negative outlook
No Related Data.
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