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31 Jan 2007
Moody's downgrades The Rank Group's ratings (CFR to Ba3);outlook negative
Approximately USD 114 million in long-term debt affected
London, 31 January 2007 -- Moody's Investors Service today downgraded to Ba3 (from Ba2) the corporate
family and issuer ratings of the The Rank Group Plc ("Rank")
and the debt ratings of its subsidiary Rank Group Finance plc (guaranteed
by Rank). The outlook is negative. The downgrade reflects
the weakening of the company's credit profile following the sale
of its Hard Rock operations (to be completed in early March 2007).
Proceeds from the sale will be largely returned to shareholders thus weakening
credit metrics and the disposal further reduces the scale, scope
and diversification of the group's operations. On the other
hand Moody's acknowledges the benefits of the strategic focus Rank
has gained now that its operations are concentrated in UK gaming.
The new Ba3 ratings also reflect concerns about the outlook for the company's
UK bingo business which has to content not only with an underlying trend
of declining attendance, but also with the negative effects of a
smoking ban which has already been introduced in Scotland and by July
2007 will cover all of the UK. The uncertainties regarding (i)
the impact of the smoking ban on Bingo attendance and profits and (ii)
the potential interest of financial buyers in the company inform a negative
On the upside, Rank has made good progress in exiting from the Deluxe
Media businesses as planned with a complete exit envisioned by mid-2007
and overall cash costs expected to remain within the GBP 57 million provision
established in 2005. Moody's also believes that Rank's
casino business remains well positioned to benefit from the positive operating
environment in the sector as regulation eases, the range of permitted
gaming activities widens and casinos become acceptable as a mainstream
leisure destination over time. In addition, a significant
number of casinos will be built under license from both the old and the
new UK gambling act. This should help to stimulate demand,
but it will also significantly increase competition, increasing
pressure on Rank's management to be effective in managing estate
and brand extension. While Rank has put measures in place to counteract
the effects of the upcoming smoking ban in England and Wales, some
of which have been trialed, the extent to which revenues and profits
will be affected remains very difficult to predict.
Given Rank's operational challenges, the rating leaves no
leeway for further material share buy-backs or acquisitions.
Any indication that the ratio Debt/ EBITDA as calculated by Moody's,
which includes adjustments for operating leases and pensions exceeds 5.5
times would lead to downward pressure on the ratings. On the other
hand, evidence of successful mitigation of the effects of the smoking
ban combined with sound underlying operating process over the next 18-24
months could help to stabilize the rating outlook.
Moody's regards Rank's liquidity currently as overall adequate.
The company does not face any material debt maturities until early 2008
when USD 100 million of Yankee bonds fall due. Rank has also represented
that it is fully funded until at least December 2007 after effecting the
planned distribution of GBP 350 million to shareholders. The rating
is based on the assumption that medium term finance will be put in place
to fund the distribution and failure to arrange this in the near term
would result in ratings pressure. All material debt elements in
the company's capital structure are currently unsecured, ranking
pari-passu with other unsecured payments obligations of the group.
The introduction of any form of material secured financing to the capital
structure that ranks ahead of the bonds or material subsidiary borrowing
is likely to have negative notching consequences for the rated bonds and
the issuer rating.
In its November 2006 trading statement Rank said that trading in its Mecca
Bingo had been impacted negatively by the smoking ban in Scotland where
revenues were down by 15% for the 48 weeks to November 26 2006,
counterbalanced only to an extent by a gain in market share. In
England and Wales Rank's clubs grew revenues by 1% with a
2% increase in spend per head off-setting a 1% admissions
decline. Grosvenor Casino's revenues were up by 6%
for the 48 weeks to November 26 2006, but growth slowed down in
the second half of the year as comparables became more demanding.
Rank reported "strong trading" for its Blue Square betting
Ratings downgraded to Ba3 (from Ba2) are :
The Rank Group Plc :
- Corporate Family Rating
- Senior Unsecured Issuer Rating
Rank Group Finance (guaranteed by The Rank Group Plc)
- USD 100m Guaranteed note due 2008
- USD 14.3m Guaranteed note due 2018
The Rank Group Plc is a gaming group with interests in casinos,
bingo, online and telephone betting, mainly in the UK.
The company is based in London, England.
David G. Staples
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Senior Vice President
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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