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Rating Action:

Moody's upgrades VICI's senior unsecured debt to Ba3; outlook is stable

21 Jan 2020

New York, January 21, 2020 -- Moody's Investors Service ("Moody's") upgraded the senior unsecured debt rating of VICI Properties L.P. ("VICI") to Ba3 from B1 and all the ratings of VICI's wholly-owned subsidiary, VICI Properties 1 LLC, including the senior secured credit facilities to Ba2 from Ba3 and its second lien notes to Ba3 from B1. In the same rating action, Moody's assigned a Ba3 rating to VICI's $2.5 billion senior unsecured notes currently being marketed and affirmed its corporate family rating ("CFR") at Ba3. VICI's speculative grade liquidity rating ("SGL") of SGL-2 remains unchanged. The rating outlook was revised to stable from positive.

Upgrades:

..Issuer: VICI Properties L.P.

....Gtd Senior Unsecured Notes, Upgraded to Ba3 from B1

..Issuer: VICI Properties 1 LLC

....Gtd Senior Secured Term Loan B, Upgraded to Ba2 from Ba3

....Gtd Senior Secured Revolving Credit Facility, Upgraded to Ba2 from Ba3

....Gtd Senior Secured Regular Bond/Debenture, Upgraded to Ba3 from B1

Assignment:

..Issuer: VICI Properties L.P.

....Gtd Senior Unsecured Notes, Assigned Ba3

Affirmations:

..Issuer: VICI Properties L.P.

.... Corporate Family Rating, Affirmed Ba3

Outlook Actions:

..Issuer: VICI Properties L.P.

....Outlook, Changed To Stable From Positive

..Issuer: VICI Properties 1 LLC

....Outlook, Changed To Stable From Positive

RATINGS RATIONALE

The rating upgrade reflects VICI's capital mix shift to mostly unsecured debt in its capital structure with the proposed offering of up to $2.5 billion of unsecured bonds. For a speculative-grade REIT that has primarily issued unsecured debt, the senior unsecured debt rating is typically equal to the corporate family rating and the senior secured debt rating is typically one notch higher than the CFR. Pro-forma for the proposed bond offering, VICI's unsecured notes will be 61% of the REIT's capital structure and the senior secured term loan B and the senior secured revolving credit facility will be 27% and 13%, respectively.

The proceeds from the proposed bond offering will be used primarily to fund the previously announced Eldorado acquisition and the remainder is to refinance the $498.5 million second lien notes. On June 24, 2019, VICI entered into a definitive agreement with Eldorado Resorts, Inc. (B1 Ratings Under Review) to acquire all of the land and real estate assets associated with Harrah's New Orleans, Harrah's Laughlin, and Harrah's Atlantic City for an aggregate purchase price of approximately $1.8 billion. These assets will be added to the non-Caesars Palace Las Vegas (Non-CPLV) Master Lease Agreement with an annual rent increase of $154 million at closing. Additionally, in exchange for $1.4 billion, the rent under the Caesars Palace Las Vegas (CPLV) Lease Agreement and the Harrah's Las Vegas (HLV) Lease Agreement will increase by $98.5 million. Eldorado will use the proceeds to partially finance its combination with Caesars Entertainment Corporation.

While the proposed unsecured bond offering will cause the REIT's leverage to rise, Moody's expects VICI's Net Debt/ EBITDA on a pro forma basis to remain well below 6.0x, which is appropriate for VICI's existing rating category. VICI finished the third quarter of 2019 with TTM Net debt to EBITDA of 4.5x but Moody's expects management to operate near the mid 5.0x net debt to EBITDA level long-term. Following its IPO in February 2018, VICI used the net proceeds to pay down its revolving credit facility, partially redeem the second-lien notes, and pay down its Term Loan B. As a result, the REIT materially improved its leverage profile.

The rating affirmation of VICI's CFR at Ba3 reflects its high quality and geographically diverse portfolio of properties, and solid cash flow, and prudent capital management policy. The stable cash flow is supported by the REIT's long-term triple net leases that are operated under the well-recognized names by leading industry operators such as Caesars Entertainment Corporation, Penn National Gaming, Inc. and Hard Rock International. These credit strengths are partially offset by VICI's negligible unencumbered assets pool and high secured debt to gross asset ratio. The low level of unencumbered asset weakens the REIT's financial position that is already hindered by the relative illiquidity of casino assets versus other real estate property types. Tenant concentration risk is also a concern, albeit improving modestly since the IPO, with acquisitions throughout regional gaming markets.

The ratings also incorporate an experienced and independent management team with a long track record and strong knowledge of the gaming and hospitality sector. The bench strength should enhance VICI's ability to expand in the gaming and hospitality sector, while good corporate governance will help to sustain the prudent financial policy and expansion as the REIT seeks to diversify into non-gaming properties in order to fulfill its external portfolio growth expectations. The stable outlook incorporates this expectation. The gaming REIT sector is relatively new but the public REITs already owned approximately 40% of the industry based on gross gaming revenue.

VICI's SGL-2 rating is supported by its cash flow generation, ample revolver availability, and a minimal near-term maturity schedule, which supports growth. At September, 30, 2019, VICI had $431 million unrestricted cash and $342.8 million of highly liquid short term investments held as available for sale securities, which are comprised of short-term investment grade commercial paper and discount notes issued by GSEs and FHLBs. On May 15, 2019, VICI amended its revolving credit facility to increase the borrowing capacity by $600 million to a total of $1.0 billion and extended the maturity date to May 2024. The $1.0 billion credit facility was fully available at September 30, 2019. Nonetheless, a mostly encumbered asset pool diminishes the REIT's liquidity position. Its unencumbered assets to gross assets were a modest 12.3% at September 30, 2019.

The gaming sector is facing increased social responsibility scrutiny. Gaming operators continue to promote their products to individuals already identified as problem gamblers. Demographic and consumer preferences are also moving in a direction that does not favor traditional casino gaming. The risk to the REIT landlord is mitigated by the fact that casinos' sizable tax revenues will likely incentivize state and local governments to facilitate the process of replacing distressed gaming operators should that become necessary. While there are limited alternative uses for gaming properties, the limited number of licenses for gaming also provides a barrier to entry for new competitors and increases the attractiveness of these assets to gaming operators.

An upgrade would require unencumbered assets to gross assets to approach 50% and a prudent growth strategy on a leverage neutral basis as the REIT seeks to diversify into non-gaming properties in order to fulfill its external portfolio growth expectations, while maintaining ample liquidity. The rating upgrade will also be predicated on net debt to EBITDA remaining below 5.5x and fixed charge coverage being above 3.5x, In addition, an upgrade will require VICI to reduce its secured debt to less than 20% of gross assets, most likely from its continued shift to an unsecured debt capital structure.

Negative rating pressure would emerge if Moody's becomes more concerned about the credit profiles of VICI's large tenants. The ratings would also be lowered if VICI's financial performance were to deteriorate such that its net debt to EBITDA is approaching 6.0x, fixed charge coverage falls below 3.0x or if VICI reverses the current refinancing trend that has improved its secured debt to gross assets ratio. Sizable leveraged acquisitions would also lead to negative rating pressure.

The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

VICI Properties Inc. [NYSE: VICI] operates as a stand-alone real estate investment trust after its spin-off on October 6, 2017 from Caesars Entertainment Op. Co. LLC ("CEOC", B1 Stable), a subsidiary of Caesars Entertainment Corporation ("CEC"). VICI owns a portfolio of 24 properties, 4 golf courses, and about 34 acres of undeveloped land adjacent to the Las Vegas Strip as of September 30, 2019.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Thuy Nguyen
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Philip Kibel
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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