Outlooks differ on Boyd Gaming

Friday, April 5, 2002 | 11:05 a.m.

Rating agency Standard & Poor's raised its rating outlook on Boyd Gaming Corp. of Las Vegas from "negative" to "stable," citing optimism that the company's balance sheet would continue to strengthen through 2002.

Meanwhile, rating agency Moody's Investors Service maintained its negative outlook, saying it believed financial pressure from construction of the $1 billion Borgata in Atlantic City could be "severe." Both agencies have "junk" ratings on Boyd; a negative outlook reflects the possibility of future credit downgrades.

Both agencies issued notes in connection with a planned $250 million senior subordinated note offering by Boyd. S&P assigned a "B+" rating to the offering, while Moody's assigned an equivalent "B1" rating; both are considered mid-level junk ratings. Proceeds from the bond offering are expected to be used to pay down bank debt and for general corporate purposes, S&P said.

The revision from negative to stable "reflects the expectation that positive operating momentum will continue and will translate into a stronger balance sheet during the course of 2002," S&P analyst Craig Parmelee said. Boyd should benefit in particular from Delta Downs, Parmelee said, a racetrack and slot casino that opened in western Louisiana in February.

Expected cash flow levels should enable Boyd to continue reducing its debt, "even if modest support for the Borgata is required beyond the current plan," Parmelee wrote.

However, Moody's analyst Keith Foley was not as optimistic. He cited Boyd's financial obligations to the Borgata, a joint venture with MGM MIRAGE set for a 2003 opening, as grounds for maintaining a negative outlook.

"While Boyd does not expect that further refinancing of its debt or the completion of the Borgata will be a problem, the financial pressure caused by less than favorable refinancing terms and/or delays or cost overruns related to the Borgata could be severe," Foley wrote.

Ratings could be lowered if Boyd is unsuccessful in meeting its debt reduction goals over the next several quarters, Foley said.