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November 28, 2014

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Investors study Boyd Gaming’s plan to reduce debt

Boyd Gaming Corp. stock was steady today as investors and analysts studied the company's plan to sell $500 million of senior notes due in 2018 as part of a debt reduction and refinancing initiative.

The Las Vegas company's stock traded early today at $8.30, up 5 cents.

Fitch Ratings today revised Boyd's rating outlook to stable from negative on the news, upgraded its rating on Boyd's senior secured credit facility and affirmed Boyd's issuer default and senior subordinated debt ratings.

Fitch said the rating actions affect Boyd's $3 billion credit facility that had roughly $1.73 billion outstanding as of Sept. 30, and about $615 million of outstanding subordinated debt.

The outlook revision to stable primarily reflects Boyd's progress in addressing 2012 debt maturities. The $500 million note issuance will finance a tender offer taking out $158.8 million in 7.75 percent 2012 notes as well as payments on Boyd's bank credit facility and potentially for refinancing other debt.

Fitch said the outlook upgrade also takes into account a recent recapitalization of the Borgata joint venture in Atlantic City that resulted in a one-time dividend and fees to Boyd of roughly $145 million, as well as Boyd's progress in receiving commitments from its banks to amend and extend a portion of the credit facility.

The affirmation of the "B" (highly speculative) issuer default rating "continues to reflect Boyd's high leverage and continued weakness in its markets, which is somewhat mitigated by a solid, albeit deteriorating free cash flow outlook supported by minimal capital spending plans," Fitch said.

Fitch's "B" issuer default ranking, under its definitions, "indicates that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment."

By comparison, Fitch's issuer default rating for MGM Resorts is lower at CCC meaning "substantial credit risk -- default is a real possibility."

"Longer term, Boyd's issuer default rating continues to be supported by its sizable and somewhat diversified portfolio of assets, successful operating history and a solid management track record. Fitch notes that the company has maintained its financial policy of considering only deleveraging acquisition opportunities, as Boyd recently passed on the M Resort (purchase) and declined to exercise its right of first refusal in connection with the offer for MGM's 50 percent stake in the Borgata joint venture," Fitch said.

"Boyd's operating performance has been at depressed levels for some time and continues to be weak, particularly in its core Las Vegas locals market, which accounts for about 40 to 45 percent of the company's wholly-owned adjusted property EBITDA (earnings before interest, taxes, depreciation and amortization)," Fitch said. "On a year-over-year basis, wholly-owned adjusted property EBITDA in the Las Vegas locals market declined 17 percent in the third quarter of 2010 as operating performance continues to suffer from the poor housing and employment environment. Fitch believes the Las Vegas locals local market performance will remain under pressure through 2011," Fitch said.

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