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TEXT-S&P rates Boyd Gaming notes 'B'
July 5 - Standard & Poor's Ratings Services assigned its 'B' issue-level rating to Las Vegas-based Boyd Gaming Corp.'s $350 million 9% senior unsecured notes due 2020. The '4' recovery rating reflects our expectation for average (30% to 50%) recovery for lenders in the event of a payment default. Boyd used the proceeds to repay outstanding borrowings under its revolving credit facility, which were partly drawn to finance a portion of the purchase price for its acquisition of Peninsula Gaming LLC. We affirmed our 'B' issue-level rating on Boyd's $500 million 9.125% senior notes due 2018 and removed the rating from CreditWatch, where it was placed with negative implications on May 17, 2012. The recovery rating remains '4'. The affirmation follows Boyd's permanent reduction in the size of its revolver by $150 million following the close of its notes issuance. The amount of the permanent reduction represents the amount of increased revolving commitments that became effective and were funded May 30, 2012. Our corporate credit rating on Boyd is 'B'; the rating outlook is stable. Our 'B' corporate credit rating on Boyd reflects our assessment of its financial risk profile as "highly leveraged" and our assessment of its business risk profile as "fair," according to our criteria. We believe Boyd's proposed acquisition of Peninsula will strengthen its business risk profile, because Peninsula's assets face limited competition, have high EBITDA margins compared with other commercial gaming operators, and are relatively good quality assets. Additionally, the transaction improves Boyd's geographic diversity and further lessens its reliance on the Las Vegas locals market, which has been more challenged than other markets in recent years. However, based on the terms of the transaction and incorporating our expectations for Boyd's and Peninsula's operating performance, we expect the consolidated Boyd and Peninsula entity will remain highly leveraged at more than 7.5x over the intermediate term. We view this level of leverage as aligned with a 'B' corporate credit rating, notwithstanding the improvement to Boyd's business risk profile. In 2012, we expect Boyd's consolidated EBITDA (excluding the Peninsula assets) to grow by about 15%, incorporating the addition of recently acquired Biloxi, Miss.-based casino IP to its portfolio, modest growth at its Las Vegas locals and Midwest and South segments, and low- to mid-single-digit growth for Downtown Las Vegas. In 2012, we expect Peninsula will experience substantial revenue and EBITDA growth, approximately 50% and 75%, respectively, benefiting from the recent opening of its Kansas Star property. We continue to expect Boyd will maintain modest covenant cushion over the next few quarters; although, we expect covenant cushion will be thin as both the senior secured and total leverage covenants tighten further in the fourth quarter of 2012 and in 2013. However, we believe Boyd would be successful in securing an amendment, if necessary, or in executing additional capital markets transactions that would alleviate covenant pressure. RELATED CRITERIA AND RESEARCH -- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Use Of CreditWatch And Outlooks, Sept. 14, 2009 -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009 -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 RATING LIST Boyd Gaming Corp. Corporate credit rating B/Stable/-- Rating Assigned $350 mil. 9% sr unsec notes due 2020 B Recovery rating 4 Rating Affirmed, Removed From CreditWatch To From $500 mil. 9.125% sr notes due 2018 B B/WatchNeg Recovery rating 4 4 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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