TEXT-S&P rates Peninsula Gaming credit facilities

Thu Jul 26, 2012 10:14am EDT

Overview
     -- Peninsula Gaming plans to enter into $875 million of new
senior secured credit facilities, consisting of a $50 million priority revolver
and an $825 million term loan.
     -- The senior secured credit facilities represent a portion of the 
financing for Boyd Gaming Corp.'s acquisition of Peninsula.
     -- We are assigning preliminary issue-level and recovery ratings to the 
priority revolver and term loan.
     -- In resolving the CreditWatch listing on our corporate credit rating on 
Peninsula, we will monitor Boyd's progress toward addressing various closing 
conditions and receiving required regulatory approvals.
 
Rating Action
On July 26, 2012, Standard & Poor's Ratings Services assigned its preliminary 
issue-level and recovery ratings to Peninsula's proposed new $875 million 
credit facilities, consisting of a $50 million priority revolving credit 
facility and an $825 million term loan, both due in 2017. 

We assigned the revolver our preliminary issue-level rating of 'BB-' (two 
notches higher than our expected 'B' corporate credit rating on Peninsula 
following the close of the acquisition) and our preliminary recovery rating of 
'1', indicating our expectation of very high (90% to 100%) recovery for 
lenders in the event of a payment default. We assigned the term loan our 
preliminary issue-level rating of 'B+' (one notch higher than our expected 'B' 
corporate credit rating on Peninsula) and a preliminary recovery rating of 
'2', indicating our expectation of substantial (70% to 90%) recovery for 
lenders in the event of a default.

The proceeds from the new senior secured credit facilities represent a portion 
of the financing for Boyd's $1.45 billion acquisition of Peninsula. In 
addition to the senior secured credit facility, financing will include a $200 
million cash contribution from Boyd, about $144 million in a seller's note, 
and $350 million of senior unsecured notes at Peninsula. 
 
Rationale
The CreditWatch listing on Peninsula reflects our expectation that in the 
event that Boyd completes its acquisition of the company under the terms 
proposed, consolidated leverage would exceed 7x over the intermediate term 
under our performance expectations for both companies. Additionally, the 
contemplated financing at Peninsula is a leveraging transaction at that 
entity, given that its current debt balances were about $700 million as of 
March 31, 2012. (We include the planned seller's note when measuring 
leverage.) Although we believe the acquisition of Peninsula would strengthen 
Boyd's business risk profile, as Peninsula's assets face limited competition, 
have high EBITDA margins compared with other commercial gaming operators, and 
are relatively good quality assets, we would view this level of leverage as 
aligned with a 'B' corporate credit rating. The transaction remains subject to 
various closing conditions and receipt of required regulatory approvals, and 
Boyd expects the transaction to close by the end of 2012.

Following the acquisition, our corporate credit rating on Peninsula will 
reflect our view of the consolidated Boyd and Peninsula portfolio of 
properties, despite the fact that different assets secure different pieces of 
the capital structure. Given our perception of the strategic relationships 
that will exist between these entities and common management following the 
acquisition, we expect management to make decisions regarding operating and 
financial strategies with a view toward the collective group of companies. We 
believe that if a payment default were to occur at either Boyd or Peninsula, 
management would most likely consider alternatives regarding the capital 
structure of the consolidated group, which could include a comprehensive 
restructuring or a bankruptcy filing.
 
CreditWatch
In resolving the CreditWatch listing, we will monitor Boyd's progress toward 
addressing various closing conditions and receiving required regulatory 
approvals. We expect to lower our corporate credit rating on Peninsula to 'B' 
once the acquisition closes.
 
Related Criteria And Research
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009
     -- Criteria Guidelines For Recovery Ratings On Global Industrials 
Issuers' Speculative-Grade Debt, Aug. 10, 2009 
     -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
     -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008 
 
Ratings List

Peninsula Gaming LLC
 Corporate Credit Rating                  B+/Watch Neg/--

New Ratings
 Senior Secured
  $50 mil revolver due 2017               BB-(prelim.)
   Recovery Rating                        1(prelim.)
  $825 mil term loan due 2017             B+(prelim.)
   Recovery Rating                        2(prelim.)


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.