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Rating Action:

Moody's upgrades Choctaw Resort's CFR to B3 and affirms senior unsecured rating at Caa1; rating outlook is stable

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 whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure 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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