6 Min Read
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.