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TEXT-S&P rates Boyd Gaming Corp
May 31, 2012 / 5:25 PM / in 5 years

TEXT-S&P rates Boyd Gaming Corp

May 31 - Standard & Poor's Ratings Services said today that it assigned its
preliminary issue-level and recovery ratings to Las Vegas-based Boyd Gaming
Corp.'s proposed $300 million senior notes due 2020. We assigned the
notes our preliminary 'B' issue-level rating and a preliminary recovery rating
of '4', indicating our expectation for average (30% to 50%) recovery for lenders
in the event of a payment default. Boyd plans to use the proceeds to repay
outstanding borrowings under its revolving credit facility, which were drawn to
finance a portion of the purchase price for its acquisition of Peninsula Gaming
LLC. Boyd will also permanently reduce the size of the revolver by $150 million,
which represents the amount of increased revolving commitments that became
effective and were funded May 30, 2012.	
	
We will finalize our ratings on the proposed senior notes and resolve our 	
CreditWatch listing on the existing senior notes in conjunction with the 	
closing of the notes offering and the permanent reduction in revolving credit 	
facility commitments. 	
	
Our corporate credit rating on Boyd is 'B' and 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.	
	
Our corporate credit rating on Boyd was unaffected by its announcement earlier 	
this month that it entered into a definitive agreement to purchase Peninsula 	
Gaming LLC for a total consideration of $1.45 billion. Boyd has obtained 	
committed financing for the transaction, which would include $200 million in 	
cash and about $1.3 billion in debt at the Peninsula subsidiary. 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.	
	
The purchase price represents an EBITDA multiple of about 7x, based on 	
Peninsula's trailing-12-month EBITDA of $109 million at its Iowa and Louisiana 	
properties; an annualized run-rate for Kansas Star based on its first-quarter 	
2012 EBITDA of $26.8 million; and corporate expenses of $10 million. In 	
addition to the purchase price, Boyd will make an additional payment in 2016 	
if Peninsula's Kansas Star property generates EBITDA in excess of $105 million 	
in 2015. 	
	
We believe the proposed acquisition will 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. 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 proposed terms of the transaction and incorporating our 	
performance 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 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; 	
however, 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	
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011	
     -- Criteria Guidelines For Recovery Ratings On Global Industrials 	
Issuers' Speculative-Grade Debt, Aug. 10, 2009	
     -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009	
     -- Analytical Methodology, April 15, 2008	
	
	
RATINGS LIST	
Boyd Gaming Corp.	
  Corporate Credit Rating      B/Stable/--	
	
Ratings Assigned	
  $300M sr notes due 2020      B (prelim)	
    Recovery Rating            4 (prelim)

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