TEXT-S&P rates Isle Of Capri Casinos notes 'CCC+'
Overview -- U.S. casino operator Isle of Capri plans to issue $350 million of senior subordinated notes due 2020. -- We are assigning our 'CCC+' issue-level rating to the notes with a recovery rating of '6'. -- The company intends to use the proceeds to refinance its 7% senior subordinated notes due 2014. -- We are placing our issue-level rating on the company's 7.75% senior notes due 2019 on CreditWatch with positive implications. Rating Action On July 24, 2012, Standard & Poor's Ratings Services assigned its 'CCC+' issue-level rating to St. Louis-based Isle of Capri Casino Inc.'s planned $350 million senior subordinated notes due 2020. The recovery rating is '6', indicating our expectation for negligible (0% to 10%) recovery for noteholders in the event of a payment default. Isle plans to use the proceeds to refinance its 7% senior subordinated notes due 2014 ($357 million outstanding). We are placing our issue-level rating on the company's 7.75% senior notes due 2019 on CreditWatch with positive implications. As part of the senior subordinated notes refinancing, the maturities of the company's revolving credit facility and term loan will be extended to 2016 and 2017, respectively, from 2013. With the extended maturities, our default year under our simulated default scenario has been pushed out versus our previous analysis, resulting in a lower level of secured debt outstanding and improved recovery prospects for the senior notes. On completion of the new notes offering, we expect to revise our recovery rating on the 7.75% senior notes upward to '4' (expectation of 30% to 50% recovery) from '5' (10% to 30% recovery) and raise our issue-level rating to 'B' from 'B-', in accordance with our notching criteria. Rationale The corporate credit rating on Isle is 'B' and the rating outlook is stable. The rating reflects our assessment of Isle's financial risk profile as "highly leveraged" and its business risk profile as "fair," according to our rating criteria. Our assessment of Isle's financial risk profile as highly leveraged reflects our expectation that adjusted leverage will remain over 6x in the near term and our expectation that the company will generate negative free operating cash flow in fiscal 2013. These factors are offset by minimal near-term maturities, the company's good interest coverage, and "adequate" liquidity. Our assessment of Isle's business risk profile as fair reflects its geographically diverse portfolio, despite locations facing competitive pressures because of the second-tier market position of many of its properties, and the company's focus on regional gaming markets, which experienced a lower level of revenue volatility over the last economic cycle than destination markets. Additionally, the near-term opening of the Cape Girardeau casino will improve Isle's diversity and its opening, along with planned asset refurbishment projects across the portfolio, will enhance the company's asset quality. Recovery analysis For the latest recovery analysis, see Standard & Poor's recovery report on Isle of Capri Casinos, to be published following this report on RatingsDirect. CreditWatch In resolving our CreditWatch listing, we will monitor the progress of the proposed transactions, including the tender offer for the senior subordinated notes due 2014, and expect to raise our issue-level rating on the senior notes once the transactions are completed. 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 Ratings List Isle of Capri Casinos Inc. Corporate Credit Rating B/Stable/-- New Ratings Isle of Capri Casinos Inc. Subordinated US$350 mil sr nts due 2020 CCC+ Recovery Rating 6 Rating Placed On CreditWatch; Recovery Rating Unchanged To From Isle of Capri Casinos Inc. Senior Unsecured B-/Watch Pos B- Recovery Rating 5 5 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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