Moody’s downgrades $620 million in Aladdin debt

Thursday, April 5, 2001 | 10:47 a.m.

Moody's Investors Service downgraded all of Aladdin Gaming Holding's credit ratings Wednesday, a move that affected $620 million in debt.

Moody's lowered the rating on the Aladdin's senior secured credit facilities from B2 to B3, affecting $410 million in debt. Also downgraded were the Aladdin's senior discount notes, which were lowered from Caa2 to Caa3. Moody's said further downgrades are possible.

Moody's issued the downgrades in the wake of the Aladdin's annual report, which indicated the resort did not currently have the cash resources to service its debt over the next 12 months. The Aladdin's report also raised the possibility of a default in the June quarter should the company be unable to renegotiate certain credit covenants or if its major shareholders fail to invest more capital in the company.

In deciding whether further downgrades are warranted, Moody's said it will focus on the Aladdin's efforts to improve liquidity, including efforts to sell certain assets, incur additional debt and attract further equity investments.

"Additionally, the review will also focus on the recovery prospects for both the senior secured facilities and the senior discount notes," the Moody's report stated.

Both the B3 and Caa3 ratings fall in the range of high-yield or "junk bond" status. B-rated investments "generally lack characteristics of the desirable investment," while Caa reflects investments in "poor standing." Lowered credit ratings can cause interest rates to rise on new debt issues and make it more difficult to raise additional debt; it can also have a negative impact on the pricing of publicly traded bonds.