Debt raters divided on Boyd-Coast deal

Tuesday, Feb. 10, 2004 | 10:56 a.m.

Debt rating agency Fitch Ratings has downgraded three bond and bank debt ratings for Boyd Gaming Corp. of Las Vegas following its agreement to purchase Coast Casinos Inc. for $1.3 billion. The company's ratings outlook is stable.

The senior secured bank rating was cut to BB from BB+, senior unsecured debt was cut to B+ from BB- and subordinated debt was cut to B from B+.

"The action reflects the substantial run-up in leverage, heavy near term discretionary spending plans associated with the combined entity and lack of free cash flow through at least 2005," Fitch analyst Patricia Wright said. She added: "Fitch views the acquisition as positive and (Boyd) has a solid track record in its acquisition activities."

Separately, Standard & Poor's Ratings Services today removed Boyd's BB corporate credit rating and B+ subordinated debt rating from CreditWatch, which could indicate a possible downgrade in the future, where they were placed Monday following the merger announcement. The ratings should not have been placed on CreditWatch, the agency said.

The company's BB+ senior secured and BB- senior unsecured debt ratings remain on CreditWatch, however, S&P said. The company's outlook is stable.

Also today, Moody's Investors Service confirmed several bank and bond ratings for Boyd and placed Coast's debt ratings on review for a possible upgrade. Boyd's rating outlook remains stable, Moody's said.

The confirmation "considers that the acquisition will greatly expand the company's presence in the Las Vegas locals market, a growing market with a high barrier to entry and stable regulatory environment," analyst Tom Marshella said. "Coast is an established operator in that market with a proven operating and development track record and good internal and external growth prospects."