Approximately $2.7 billion of rated debt affected.
New York, March 31, 2011 -- Moody's Investors Service today downgraded Ameristar Casinos,
Inc.'s (Ameristar) Corporate Family and Probability of Default
ratings to B1 from Ba3. At the same time, Moody's assigned
a Ba3 rating to the company's proposed $1.4 billion
senior secured credit facilities, and a B3 to its proposed $800
million senior unsecured note offering. Ameristar's Speculative
Grade Liquidity rating remains unchanged at SGL-2. A stable
ratings outlook was assigned.
This concludes the review process that was initiated on February 28,
2011 when the company announced that it entered into a binding agreement
with the co-executors of the Estate of Craig H. Neilsen
to purchase 26,150,000 shares of Ameristar common stock held
by the Neilsen Estate at a price of $17.50 per share,
for a total price of $457,625,000.
Proceeds from the proposed debt offerings will be used to retire approximately
$1.5 billion of existing indebtedness and to fund the share
repurchase.
Ratings lowered:
Corporate Family Rating to B1 from Ba3
Probability of Default Rating to B1 from Ba3
Ratings assigned:
$500 million senior secured revolver expiring 2016 at Ba3 (LGD
3, 31%)
$200 million senior secured term loan A due 2016 at Ba3 (LGD 3,
31%)
$700 million senior secured term loan B due 2017 at Ba3 (LGD 3,
31%)
$800 million senior unsecured notes due 2021 at B3 (LGD 5,
85%)
Ratings confirmed and to be withdrawn when transaction closes:
$650 million 9 ¼% senior subordinated notes due 2014
at B2 (LGD 5, 84%)
RATINGS RATIONALE
"The downgrade of Ameristar's Corporate Family Rating (CFR)
to B1 from Ba3 reflects the significant increase in leverage resulting
from the stock repurchase and Moody's concern that Ameristar will
not be able to generate its targeted level of free cash flow for fiscal
2011 and fiscal 2012. As a result, Moody's believes
the company will find it difficult to reduce debt/EBITDA back down to
where it was prior to the debt-financed stock repurchase,"
stated Keith Foley, Senior Vice President at Moody's.
Pro forma for the share repurchase, debt/EBITDA calculated according
to Moody's standard adjustments, will be significant at about
6.7 times compared to about 5.0 times at December 31,
2010.
Despite continued earnings pressure, Moody's expects that
Ameristar will generate between $200 million and $250 million
of cumulative free cash flow over the next two fiscal years, most
or all of which of is expected to be applied toward absolute debt reduction.
However, despite this debt reduction, Ameristar's debt/EBITDA
will likely remain above 5.5 times by the end of fiscal 2012,
a level more consistent with a B1 CFR. While it appears that gaming
revenues across the U.S. have stabilized, Ameristar's
ability to grow earnings -- a key factor with respect to
achieving its debt reduction targets -- is still subject
to a relatively weak outlook for consumer discretionary spending,
and other macro-economic factors such as continued high unemployment
and higher energy costs, any or all of which could unfavorably impact
consumer spending on gaming.
The B1 CFR continues to reflect Ameristar's leading gaming revenue
share in markets that represent a majority of its consolidated revenue
and cash flow, high EBITDA margins relative to its peer group,
and the fact that the company has invested a considerable amount of capital
in its asset base in the past few years.
The stable outlook considers that although Ameristar is taking on considerable
additional debt, there will likely be an overall reduction in the
company's weighted average cost of debt as a result of its refinancing.
The stable outlook also recognizes the favorable impact the refinancing
will have on Ameristar's debt maturity profile. The earliest
material debt maturity will now occur in 2016. Prior to the refinancing,
the company's bank facilities matured in 2012.
Ratings could be lowered if it appears that Ameristar will not be able
to reduce debt/EBITDA debt to 6.0 times by the end of fiscal 2012.
A higher rating would require that Ameristar achieve and sustain debt/EBITDA
at/below 5.0 times.
The Ba3 rating on the proposed $1.4 billion bank credit
facilities is one-notch higher than Ameristar's CFR.
This reflects the substantial amount of credit support that it receives
from the company's proposed $800 million senior unsecured
note offering. The B3 rating on Ameristar's proposed $800
million senior unsecured note offering is two notches lower than its CFR
and reflects the significant amount of secured debt that will have a priority
of claim senior to the unsecured notes.
The principal methodologies used in this rating were Global Gaming published
in December 2009, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Ameristar Casinos, Inc. owns and operates eight hotel/casinos
in seven jurisdictions. The company generates approximately $1.2
billion of consolidated net revenues.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Keith Foley
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's lowers Ameristar's CFR to B1, assigns new bank & note ratings; stable outlook
