December 21, 2017 / 6:27 PM / 2 years ago

Fitch: Boyd Gaming's Rating Unaffected by Acquisition of Valley Forge

(The following statement was released by the rating agency) NEW YORK, December 21 (Fitch) Boyd Gaming Corporation's (BYD); 'B+' Issuer Default Rating (IDR) is not affected by the debt-funded $281 million acquisition of Valley Forge Casino Resort, according to Fitch Ratings. Fitch recently revised BYD's Rating Outlook to Stable from Positive following the announced acquisition of four gaming operations owned by Pinnacle Entertainment, Inc. (PNK). The Valley Forge acquisition fits within the context of a Stable Outlook given Fitch's expectation that BYD's traditional debt/EBITDA will remain above 5.0x longer than previously forecasted. Unlike the PNK assets, the Valley Forge acquisition includes both gaming operations and real estate and is not subject to a lease agreement. An upgrade to 'BB-' is still possible within the next 24 months if BYD's traditional leverage declines below 5x, rent adjusted leverage is at or close to 5x, and the percentage of assets that are leased remains modest. Since BYD's rent-adjusted leverage will be approximately 0.5x higher than traditional leverage, an upgrade to 'BB-' will hinge on BYD managing closer to the middle of its 4x-5x target leverage range. Both the Valley Forge and PNK acquisitions diversify BYD's asset base with access to four new regional gaming markets and grow its regional gaming network. BYD's exposure to Las Vegas markets, where it historically had a concentration, will decline to about 36% of property EBITDAR from 44% prior to the acquisitions. Fitch views the acquired PNK gaming assets favorably, as they are market-leading assets in markets with minimal threat of new competition. The gaming assets represent about 26%, 26%, and 32% market share based on YTD gross gaming revenues in St. Louis, MO, Kansas City, MO and Cincinnati, OH, respectively. Valley Forge gives BYD a foothold into the $1.2 billion Philadelphia market, where the property represents about 9% market share. The 7x EV/EBITDA purchase multiple reflects cost synergies and the opportunity to expand the slot floor as permitted by the recently passed gaming expansion law. The elimination of its customer admission fee is also a positive. However, the market is subject to upcoming competition with Live! Hotel & Casino, a $600 million new property in Philadelphia, expected to begin construction in 2018. Please see Fitch's press release "Fitch Affirms Boyd Gaming's IDR at 'B+' on Acquisition; Outlook Revised to Stable" dated Dec. 18, 2017 for additional commentary. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action --Debt/EBITDA declining and remaining below 5.0x (Fitch forecasts 4.9x for 2019); --Adjusted debt/EBITDAR declining close to 5.0x (Fitch forecasts 5.3x 2019); --Discretionary run-rate FCF exceeding $300 million on sustained basis (Fitch forecasts $400 million for 2019); --Regional markets remaining stable or growing on same-store basis. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action --Boyd's debt/EBITDA ratio remaining above 6.0x on a sustained basis (Fitch forecasts 4.9x for 2019); --Adjusted debt/EBITDAR increasing to 6.0x (Fitch forecasts 5.3x 2019); --Discretionary run-rate FCF declining toward or below $150 million (Fitch forecasts $400 million for 2019); --Operating pressure with same-store revenues declining over an extended period; --Boyd pursuing a REIT spin-off or an M&A activity that would result in rent-adjusted leverage increasing. Contact: Primary Analyst Colin Mansfield, CFA Director +1-212-908-0899 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Alex Bumazhny, CFA Senior Director +1-212-908-9179 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email:; Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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