Las Vegas Sun

March 29, 2024

Boyd Gaming moves for credit flexibility as it seeks growth options

Boyd still pursuing $2.45 billion acquisition of Station Casinos

Station Casinos properties

The clock tower of the Boulder Station hotel-casino obscures the resort's 15-story tower. Launch slideshow »

Boyd Gaming Corp. of Las Vegas on Monday said it amended a bank credit facility to give it more flexibility as it pursues growth options including its proposed $2.45 billion acquisition of Station Casinos Inc.

In what appeared to be a contradictory announcement, Boyd said key debt leverage covenants were relaxed — yet its borrowing capacity under its bank credit facility was reduced by $1 billion to $3 billion.

The contradiction is explained by considering that the credit facility at issue was last amended in May 2007 — when the $4.8 billion Echelon Place megaresort on the Las Vegas Strip was expected to be a big contributor to Boyd revenue and cash flow.

With Echelon Place mothballed and out of the cash flow picture, Boyd said Monday that the ratio to determine maximum funded debt will first fall under the amendments -- from 7.5 to 7.25 times earnings before interest, taxes, depreciation and amortization (EBITDA) -- for the quarter ended Dec. 31, 2010.

The ratio will then increase as of March 31, 2011, from 6.5 to 7 times EBITDA for the four quarters ending that date.

The ratio will then decline in steps through March 31, 2012, to 5.5 times EBITDA. That’s higher than the 5.25 number the ratio would have fallen to before the amendment.

The reduction in borrowing capacity shouldn’t affect Boyd’s growth plans.

Since $2 billion in Boyd bank debt is now outstanding, that gives the company $1 billion in borrowing capacity that it could use for its $2.45 billion proposed acquisition of Station. Such an acquisition, if approved by Station and creditors in its bankruptcy case, would involve the assumption of some Station debt as well as a cash payment.

"While not required by our lenders, this amendment provides us with enhanced flexibility and furthers our ability to pursue potential strategic growth opportunities in the future. This amendment was done with full consideration of our recently announced proposal to acquire the assets of Station Casinos, and that proposal was not contingent on this amendment," Keith Smith, president and chief executive officer of Boyd Gaming, said in a statement.

Boyd on Dec. 16 made another offer to buy Station, which has 18 casinos and hotel-casinos in Southern Nevada and manages an Indian casino in the Sacramento area.

Station has not yet formally responded to the offer, but has noted that its exclusive period to propose a bankruptcy reorganization plan extends through March 25.

An analyst at CreditSights last week said Boyd’s offer seems fair, but raised questions about Boyd’s compliance with debt covenants.

"We believe that a merger between Boyd and Station makes intuitive sense, given Boyd’s knowledge of the Las Vegas locals market,’’ CreditSights analyst Chris Snow wrote in a report last week. "Boyd has no significant pipeline, apart from its mothballed Echelon project; conversely, Station has a vast array of undeveloped projects, including four tribal agreements. With Station slogging through bankruptcy, the company has no effective access to capital to provide momentum to any of these projects, and this could change with Boyd’s backing.’’

"Overall, the transaction is feasible out of the gate, but the deal would pose longer-term risks (to Boyd’s credit profile),’’ Snow wrote.

Numerous uncertainties in Boyd’s offer for Station complicate the analysis of whether the deal will happen and its potential effect on Boyd’s credit profile. Snow said they include:

--How the offer will be received by the current constituents in Station’s bankruptcy case. While Station has previously rebuffed Boyd’s overtures, the new offer is likely to put pressure on Station since "we believe the deal offers a fairly compelling valuation for the assets and it potentially offers lenders a shorter stint in bankruptcy,’’ Snow wrote.

--Uncertainties about how two big Station joint ventures — Green Valley Ranch resort and Aliante Station hotel-casino — would be affected by a Boyd takeover. Affiliates of the Greenspun family, owner of the Las Vegas Sun, are Station’s partner in both joint ventures.

--Whether Station’s estimated $155 million cash on hand restricted for the benefit of lenders would remain under lenders’ control.

--Whether the deal would survive antitrust scrutiny, as Boyd and Station now compete head to head in some Las Vegas locals markets.

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