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I AGREE
10 Jul 2014
Approximately $110 million of rated debt affected
New York, July 10, 2014 -- Moody's Investors Service upgraded Choctaw Resort Development Enterprise's
("Choctaw" or "the Enterprise") Corporate Family Rating ("CFR")
to B3 from Caa1 and Probability of Default Rating to B3-PD from
Caa1-PD. At the same time, Moody's affirmed
the Enterprise's senior unsecured notes rating at Caa1. The
rating outlook is stable.
Choctaw recently announced that it had refinanced its $70 million
senior secured term loan due 2017 (unrated) with a $145 million
senior secured term loan due 2019 (unrated). The credit agreement,
among other things, provides Choctaw with $75 million to
pre-fund capex projects, lowers the interest rate on the
term loan and provides some covenant flexibility.
The upgrade of Choctaw's CFR to B3 reflects the improved operating
performance of the Tribe's casino operations since Choctaw's
new management team took over in mid-2012, as well as the
Enterprise's improved liquidity profile following the refinancing
of its senior secured term loan.
Ratings upgraded:
Corporate Family Rating to B3 from Caa1
Probability of Default Rating to B3-PD from Caa1-PD
Ratings affirmed:
$110 million senior unsecured notes due 2019 at Caa1 (LGD4)
RATING RATIONALE
The B3 CFR reflects Choctaw's relatively strong financial leverage
and coverage metrics. For the LTM period ended March 31,
2014, pro forma for the new $145 million term loan,
Choctaw's debt/EBITDA and EBIT/interest expense were 2.0
times and about 5.0 times, respectively. The Enterprise's
earnings have improved following the addition of a new management team
in mid-2012. Since the end of fiscal 2011, Choctaw's
EBITDA has increased about 35% and margins have improved to between
35% and 45%. The margin improvement came despite
5% lower revenue over the same time period as Mississippi's
economy continues to struggle with higher unemployment rates than the
national average, and with management's decision to reduce
its low-margin business.
Although Choctaw's credit metrics are strong for the rating category,
the Enterprise remains exposed to several near-term issues that
will continue to constrain its ratings. Choctaw faces additional
competition from the opening of two Native American Class II facilities
in Alabama -- a little over 100 miles from Choctaw's Silver
Star and Golden Moon casinos -- where a significant amount of Choctaw's
rated players are located. While Choctaw's casinos have Class
III gaming as compared to the Alabama facilities' class II games,
there are still gamblers that prefer convenience if the facility offers
similar amenities, so Moody's expects Choctaw's operations
will be negatively affected by this new competition. The new $75
million term loan will finance needed capex at its existing properties
as well as re-opening the Golden Moon casino on a full time basis
which will help counter the new competition. Also, Choctaw's
ratings continue to be constrained by the ongoing FBI investigation which
began in 2011. While it appears that the Choctaw Tribe is not the
focus of the investigation, the ratings reflect the open investigation.
The ratings also take into account the relatively weak gaming demand trends
in its primary market area, its significant dividend obligations
and other risks common to Native American Gaming issuers.
Choctaw's good liquidity profile reflects its cash balances of about
$64 million at March 31, 2014, our expectation that
the Enterprise's internal cash flow will be sufficient to cover
its interest expense, mandatory debt amortization, maintenance
capex and tribal distributions over the next 12 -- 18 months.
Choctaw's new credit agreement also provides up to $75 million
of additional borrowing capacity for capex needs over the next 24 months.
The Enterprise does not have a committed revolver in place which is a
credit negative. The new credit agreement provides additional flexibility
under Choctaw's covenants. Going forward, certain capex
made in the first three years of the loan is excluded, and the maximum
leverage allowed under the maximum total leverage covenant was increased
to 3.25 times.
The stable rating outlook reflects Moody's expectations that Choctaw
will be able to maintain its EBITDA margins between 35% and 40%
and retained cash flow/debt above 10% despite additional competition
coming from relatively new Native American casinos in Alabama.
Revenue and earnings growth will be driven by the renovations at the Silver
Star casino and the reopening of the Golden Moon casino.
The ratings could be downgraded if it appears that the FBI investigation
were to have negative effects on Choctaw's gaming operations or
if the Enterprise did not generate a rate of return on its capital investments
sufficient to maintain its current EBITDA margins. Ratings could
also be downgraded if gaming revenue trends in Mississippi were to materially
decline or if gaming revenue at the Silver Star and Golden Moon casinos
-- the 2 largest contributors to EBITDA -- were to decline.
Ratings could be upgraded if Choctaw successfully absorbs the new competition
in Alabama while growing EBITDA and retained cash flow/debt is sustained
above 15%. Favorable resolution of the FBI investigation
could also result in a rating upgrade.
Per Moody's Loss Given Default methodology, the affirmation of the
Caa1 rating on the $110 million senior unsecured notes reflects
the increased amount of senior secured debt ahead of it in the capital
structure.
The principal methodology used in this rating was the Global Gaming Industry
published in June 2014. 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.
Choctaw Resort is a component unit of the Mississippi Band of Choctaw
Indians, which was created by the Tribe in October 1999 to run its
gaming operations. It owns and operates in central Mississippi
the Silver Star Hotel and Casino, the Golden Moon Hotel and Casino
and the Bok Homa Casino, which commenced operations in 1994,
2002 and 2010, respectively.
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
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associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
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to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Peter Trombetta
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades Choctaw Resort's CFR to B3 and affirms senior unsecured rating at Caa1; rating outlook is stable
No Related Data.
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