Overview -- U.S. gaming operator Ameristar Casinos Inc. is being acquired by Pinnacle Entertainment Inc. for $2.8 billion. -- We are placing our 'BB-' corporate credit rating on both Ameristar and Pinnacle 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. Rating Action On Dec. 21, 2012, Standard & Poor's Ratings Services placed its ratings, including the 'BB-' corporate credit rating, on both Ameristar Casinos Inc. and Pinnacle Entertainment Inc. on CreditWatch with negative implications. Rationale 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. CreditWatch In resolving the CreditWatch listing, we will monitor the companies' ability to address various closing conditions and receive 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 one notch. 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 Ratings List CreditWatch Placement To From Ameristar Casinos Inc. Corporate Credit Rating BB-/Watch Neg/-- BB-/Stable/-- Senior Secured BB+/Watch Neg BB+ Recovery Rating 1 1 Senior Unsecured B+/Watch Neg B+ Recovery Rating 5 5
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