Fitch affirms company debt ratings

Monday, Dec. 17, 2001 | 9:44 a.m.

Fitch IBCA on Friday affirmed its debt ratings on Mandalay Resort Group, removing the immediate threat of a credit downgrade of the Las Vegas casino giant.

Fitch affirmed a "BB-plus" rating on the company's senior debt and a "BB-minus" rating on its senior subordinated debt. Fitch also assigned a "BB-minus" rating to a recent $300 million of 9.375 percent senior subordinated notes; Mandalay plans to use proceeds to pay down bank debt. These ratings are considered "junk bond" status.

"The debt ratings are based on (Mandalay's) leading position on the Las Vegas Strip, solid gaming assets in Illinois and Detroit and the company's ability to generate adequate free cash flow," Fitch said.

With Friday's action, Fitch removed a Rating Watch Negative status from Mandalay, which is assigned when a company is under review for possible downgrade in the immediate future. Mandalay currently has $2.6 billion in debt, all of which could have been affected by a downgrade. Typically a downgrade by a major credit agency can make it more difficult for a company to incur additional debt, and can raise the interest rate it pays on new debt.

However, Fitch maintained a negative rating outlook on Mandalay, which raises the possibility of long-term credit downgrades. Fitch said it was concerned about "potentially a weaker and more volatile level of earnings due to a prolonged economic downturn."

"Fitch will monitor operating results as well as capital spending on future expansion opportunities and share repurchase programs," the agency said. "Future rating action will also focus on (Mandalay's) ability to increase cash flow visibility relative to total debt."