-- U.S. gaming operator Pinnacle Entertainment Inc. announced it is
acquiring Ameristar Casinos Inc. for $2.8 billion.
-- We are placing our 'BB-' corporate credit rating on both Pinnacle and
Ameristar on CreditWatch with negative implications.
-- In resolving the CreditWatch listing, we will monitor the companies'
ability to address various closing conditions and receive the required
regulatory approvals, and we will meet with management to discuss integration
plans, near- and longer-term growth objectives, and financial policy.
On Dec. 21, 2012, Standard & Poor's Ratings Services placed its ratings,
including the 'BB-' corporate credit rating, on both Pinnacle Entertainment
Inc. and Ameristar Casinos Inc. on CreditWatch with negative implications.
The CreditWatch listings follow Pinnacle's announcement that it plans to
acquire Ameristar. Based on the announced terms, the transaction values
Ameristar at $2.8 billion and will add roughly $1 billion in additional debt.
This translates into an additional 1.5x of leverage based on Pinnacle and
Ameristar's combined EBITDA for the 12 months ended Sept. 30, 2012, and
excluding synergies that Pinnacle expects to be able to achieve. Based on our
current performance expectations and capital spending assumptions for both
companies over the next few years, we expect this transaction would result in
consolidated leverage increasing to the mid- to high-6x area as the combined
company completes several new developments. While we would expect the company
to deleverage quickly following the opening of these new properties, leverage
sustained in the mid- to high-6x area over the near term is somewhat weak for
the companies' current ratings, in our view.
In addition to the increase in leverage, an acquisition of this size creates
some degree of integration risk. We believe these risks are partially
mitigated by the fact that the acquisition will improve the overall business
risk profile of Pinnacle by substantially growing its asset base and adding
additional high-quality assets to its portfolio, expand its geographic
diversity, and strengthen margins, given Ameristar's EBITDA margins compare
favorably with other U.S. commercial gaming operators.
In resolving the CreditWatch listing, we will monitor the companies' ability
to address various closing conditions and receive the required regulatory
approvals; update our performance expectations for the combined company; and
meet with management to discuss integration plans and potential synergies,
near- and longer-term growth objectives, and financial policy. If a downgrade
for the combined entity is the outcome of our analysis, it would be limited to
Related Criteria And Research
-- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Use Of CreditWatch And Outlooks, Sept. 14, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Pinnacle Entertainment Inc.
Corporate Credit Rating BB-/Watch Neg/-- BB-/Stable/--
Senior Secured BB+/Watch Neg BB+
Recovery Rating 1 1
Senior Unsecured BB-/Watch Neg BB-
Recovery Rating 3 3
Subordinated B/Watch Neg B
Recovery Rating 6 6