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Rating Action:

Moody's raises CCM Merger's CFR to Caa1, stable outlook

21 Mar 2011

New York, March 21, 2011 -- Moody's Investors Service today upgraded CCM Merger, Inc.'s ("CCM") Corporate Family and Probability of Default ratings to Caa1 from Caa2. Moody's also confirmed the Caa3 rating on CCM's $273 million 8% senior unsecured notes due 2013 and the B3 rating on its $635 million senior secured bank facilities which is comprised of a $20 million revolver expiring in 2016 and a $615 million term loan due in 2017. The rating outlook is stable.

This rating action concludes the review process that was initiated on February 3, 2011.

Ratings upgraded:

Corporate Family Rating to Caa1 from Caa2

Probability of Default Rating to Caa1 from Caa2

Ratings confirmed:

$20 million senior secured revolver expiring in 2016 at B3 (LGD 3, 34%)

$615 million senior secured term loan due in 2017 at B3 (LGD 3, 34%)

$273 million 8% senior unsecured notes due 2013 at Caa3 (LGD 5, 87%)

Ratings withdrawn:

$70 million senior secured revolver expiring in 2011 at Caa1 (LGD 3, 33%)

$540 million senior secured term loan due 2012 at Caa1 (LGD 3, 33%)

RATINGS RATIONALE

The upgrade of CCM's Corporate Family Rating (CFR) to Caa1 from Caa2 reflects the recent closing of the company's $635 million senior secured bank facilities which provided the company with a more relaxed debt maturity schedule and improved covenant cushion. The refinancing eliminated the 2011 and 2012 maturities related to CCM's previous bank credit facilities. In addition, it eliminated the risk of a leverage covenant violation. CCM's previous credit facilities required that the company achieve total debt/EBITDA of 5.4 times beginning in the third quarter of 2011, with further tightening after that. The company's current bank agreement allows total leverage of 8.25 times through the end of 2011, dropping to 8 times through 2012 with further gradual step downs through its maturity.

The Caa1 CFR also reflects Moody's view that CCM still faces substantial risks, including the company's significant leverage -- debt/EBITDA for the 12-month period ended December 31, 2010 was 7.4 times -- along with the springing maturity feature included in the company's bank credit agreement. Despite Moody's more favorable view of CCM's revenue, earnings, and free cash flow prospects, and expectation that the company can improve its debt/EBITDA, leverage will likely remain well above 6 times in the foreseeable future. Additionally, CCM still faces a material amount of refinancing risk. Although the recent refinancing extended a significant portion of the company's debt maturities, the springing maturity requires that the company's revolver (expiring 2016) and term loan (due 2017) maturities be pushed up to May 2013 if the company's $273 million unsecured notes (due August 2013) are not refinanced by that time.

The confirmation of CCM's $273 million senior unsecured notes due 2013 at Caa3 reflects the fact that the amount of senior debt ahead of the notes remains substantial and is $25 million higher than it was prior to the refinancing. The confirmation of CCM's $635 million senior secured bank facilities at B3 acknowledges the continued credit support afforded by the senior unsecured notes.

The stable rating outlook considers CCM's good liquidity profile. In addition to maintaining compliance with its financial covenants, Moody's expects that the company will be able to fund all of its basic cash and capital expenditure requirements from internal cash sources going forward. Additionally, the company has access to a $20 million revolver that will not likely have to be drawn.

Ratings could be lowered if CCM's liquidity deteriorates for any reason as the company's good liquidity profile is a key positive factor supporting its Caa1 CFR. Additionally, ratings could be lowered if the company does not appear to be making progress on the refinancing of its 8% senior unsecured notes well in advance of its maturity. Additionally, while the Detroit gaming market has experienced some stability with regards to promotional activity, a return to the type of highly aggressive promotional activity that occurred during the second half of 2009 and first half of 2010 could also result in a negative rating action.

Ratings could be raised if the company is able reduce its debt/EBITDA to below 6 times and maintain a good liquidity profile. An upgrade would also require that CCM refinance its 8% senior unsecured notes in a manner that results in a cost of overall debt capital that remains substantially lower than the company's return on assets. EBITDA/Average assets is currently at about 13%, or between 11% and 12% if annual maintenance capital expenditures of $15 million is deducted from EBITDA.

The principal methodologies used in this rating were Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009, and Global Gaming published in December 2009.

CCM Merger, Inc. indirectly owns and operates the MotorCity Casino in Detroit, Michigan. The company generates approximately $460 million of annual net revenue.

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 maintaining 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
Kendra M. Smith
MD - Corporate Finance
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 raises CCM Merger's CFR to Caa1, stable outlook
No Related Data.
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