Approximately $595 million rated debt affected
New York, January 27, 2011 -- Moody's Investors Service today downgraded Peninsula Gaming,
LLC (PGL)'s Corporate Family Rating (CFR) and Probability of Default
Rating to B2 from B1, its existing $240 million senior secured
notes rating to Ba3 from Ba2 and existing $305 million senior unsecured
notes rating to Caa1 from B3. The rating outlook is stable.
The above rating actions concluded the review for possible downgrade which
was initiated on December 21, 2010.
In a separate rating action, Moody's assigned a Caa1 rating
to the proposed add-on issuance of $50 million senior unsecured
notes due 2017. Proceeds from proposed offering plus additional
$80 million senior secured debt to be issued, planned slot
vendor and equipment financing of $42 million and cash flow from
existing and future operations will be used to fund the first phase of
a $295 million casino project named Kansas Star in Mulvane,
Kansas, approximately 14 miles south of Wichita, KS.
Construction is expected to begin in the first quarter of 2011 with an
initial opening in January 2012 to operate 1,310 slot machines and
32 table games in a temporary facility. According to the offering
circular, PGL will need to obtain consents from both the bondholders
of the existing senior secured notes and the lenders of the senior secured
revolving credit facility (not rated) for permission of issuance of additional
senior secured notes up to $80 million. The Caa1 rating
of the add-on senior unsecured notes is subject to completion of
a series of transactions and final review of the terms and documentations.
Today's rating actions are as follows:
Corporate Family Rating --to B2 from B1
Probability of Default Rating -- to B2 from B1
$240 million senior secured notes due 2015 --to Ba3(LGD2,
29%) from Ba2 (LGD2, 26%)
$305 million senior unsecured notes due 2017 -- to Caa1(LGD5,
79%) from B3 (LGD5, 78%)
$50 million senior unsecured notes add-on due 2017 --
"The downgrade of Peninsula's CFR to B2 primarily reflects
PGL's high financial leverage due to weaker than our expected operating
performance from existing casinos, particularly the two properties
located in Louisiana," explained Moody's lead analyst,
John Zhao. The rating action also incorporates the increased business
risks associated with a ground-up casino development. The
B2 rating has taken into account the expected significant increase in
debt/EBITDA to well above 7.0x throughout 2011 during the construction
period and the gradual decrease of the leverage ratio after the planned
opening of the casino in a temporary facility starting in January 2012.
The B2 CFR gains support from the company's expected good liquidity
and relative stability of PGL's regional-focused markets
throughout the recession.
Like other ground-up casino developments, PGL's Kansas
casino will be exposed to potential project delay and cost overrun during
construction, uncertain demand and possibly higher than expected
opening and operating costs after it opens. Also, the new
casino will face competitions from existing casinos (mostly from casinos
in Oklahoma approximately 50 miles away) and would likely be negatively
impacted if the Wyandotte Nation of Oklahoma Indian tribe will be able
to open a casino in the same Wichita metro area. The lack of significant
equity support of project costs in the initial phase of the construction
will also increase risk profile for creditors should the project fail.
However, positive consideration is given to the regulated nature
of gaming in Kansas that limits potential new entrants in the market (except
the above-mentioned potential native American casino), the
casino site's proximity to Wichita which is the largest city in
Kansas and PGL's demonstrated gaming development and operating experience
in regional casinos.
The stable ratings outlook reflects Moody's expectation that property
level EBITDA generation from the existing four casinos in Iowa and Louisiana
will remain relatively steady and the company will maintain a sound liquidity
position. The stable outlook also assumes that PGL is able to obtain
project financings on a timely basis, the Kansas casino will open
on time and on budget, and that the primary market area will provide
enough guest traffic and spending for the casino to generate sufficient
cash flow to reduce the company-wide debt/EBITDA to below 5.5x
one year after its opening. Given the significant expected EBITDA
contribution from the new casino and amount of the debt thereon incurred,
any material deviation from our expectations would result in downward
pressure on PGL's rating or outlook. Additionally,
an unfavorable outcome from on-going legal proceedings, including
the pending charges against the company's CEO and COO in Iowa,
that will result in material adverse effect on business and operation,
would also exert negative pressure on ratings.
For more information on PGL, please refer to an updated credit opinion
PGL is a holding company whose primary assets are equity interests in
its wholly owned subsidiaries, which own and operate the Diamond
Jo casino in Dubuque, Iowa, the Evangeline Downs Racetrack
and Casino in St. Landry Parish, Louisiana, the Amelia
Belle Casino located in Amelia, Louisiana, and the Diamond
Jo Worth casino in Worth County, Iowa. Consolidated net revenues
for the fiscal year ended December 31, 2009 were approximately $308
The principal methodology used in this rating was 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.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
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in assigning a credit rating is of sufficient quality and from sources
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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
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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
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used in determining ratings, further information on the meaning
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Corporate Finance Group
Moody's Investors Service
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's lowers Peninsula Gaming's CFR to B2, assigns Caa1 to add-on sr. unsecured notes
250 Greenwich Street
New York, NY 10007