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Fitch Affirms Pinnacle's IDR at 'B' on Ameristar Acquisition; Maintains Positive Outlook



  Fitch Affirms Pinnacle's IDR at 'B' on Ameristar Acquisition; Maintains
  Positive Outlook

Business Wire

NEW YORK -- December 21, 2012

Fitch Ratings has affirmed Pinnacle Entertainment, Inc's (Pinnacle) Issuer
Default Rating (IDR) at 'B' following Pinnacle's announcement that it entered
into an agreement to acquire Ameristar Casinos, Inc. (Ameristar) for $2.8
billion, including $1.9 billion of debt. Pinnacle's Rating Outlook remains
Positive. See the full list of rating actions at the end of this release.

The affirmation and Positive Outlook reflect the strong strategic rationale
for the acquisition, increased geographic diversification of the combined
group, and more robust discretionary free cash flow (FCF) profile. These
transaction positives result in notably reduced business risk, which is
balanced by a modest increase in financial risk, namely a moderate increase in
leverage and a more top-heavy capital structure.

Overall, Fitch views this transaction favorably as it roughly doubles the size
of the company with limited geographic overlap in properties. Ameristar's
regional casinos maintain some of the highest operating margins in the
industry.

Fitch calculates Pinnacle's leverage as of the latest 12 months (LTM) ended
Sept.30, 2012 at 5.1x, with adjusted EBITDA of $284 million and debt of $1.44
billion. Ameristar's LTM leverage is similar at 5.3x with adjusted EBITDA of
$365 million and debt of $1.92 billion.

Pinnacle obtained commitments for $1.1 billion of additional debt to purchase
Ameristar's equity and pay transaction fees, which will result in pro forma
total debt of nearly $4.48 billion.

Pro forma LTM leverage is nearly 6.9x, based on combined adjusted EBITDA of
$649 million. However, Fitch estimates run-rate adjusted EBITDA is closer to
$700 million (leverage of around 6.4x) considering the ramp up of L'Auberge
Baton Rouge (opened September 2012) and some immediate cost synergies.
Pinnacle's estimate of $40 million in cost synergies is reasonable, given that
it is below Ameristar's corporate expense run rate of $50 million.

Leverage could peak in the mid-to-high-6x range during the development of
Ameristar Lake Charles, which is scheduled to open in the third quarter of
2014. Fitch forecasts that pro forma leverage should return to the
mid-to-low-5x range by the end of 2014 and 5x or below by 2015.

This leverage trajectory is consistent with a 'B+' IDR given the improved
business risk profile, supporting the Positive Outlook. The ratings also take
into account a longer-term leverage target in the 4x-5x range, which is
consistent with a higher IDR, given the pro forma business risk profile.

The pro forma capital structure includes primarily additional debt at both the
Pinnacle and Ameristar restricted groups. The company is looking into
combining the restricted groups, so the ultimate capital structure may differ,
but if it closes as currently structured, there will be an additional $410
million of senior secured debt at Pinnacle.

Fitch places Pinnacle's 'BB-/RR2' senior unsecured rating and 'B-/RR5'
subordinated debt rating on Rating Watch Negative as a result of increased
secured debt at Pinnacle in the potential pro forma capital structure, which
weakens the recovery prospects of those instruments.

Ameristar's bonds contain change of control put provisions, but they are
trading at strong premiums so they are unlikely to be exercised.

The Negative Watch is assigned solely in connection with the current
transaction terms. Should the transaction close with its current structure,
the senior unsecured and subordinated issue ratings would be downgraded at or
prior to the closing of the transaction (expected mid-2013). Potential exists
for changes to the proposed capital structure, and Fitch will consider any
changes to debt instrument ratings in the context of its recovery analysis.

The Positive Outlook on the IDR of 'B' indicates a longer-term time horizon
(12-24 months). The transaction could close before Fitch views that the
overall credit profile has improved enough to warrant an upgrade to 'B+'.

WHAT COULD TRIGGER A RATING ACTION

Positive: Future developments that may, individually or collectively, lead to
positive rating action include:

--Pro forma leverage trajectory continuing to progress toward mid-to-low-5x
range by the end of 2014 and 5x or below by 2015;

--Closing the acquisition of Ameristar at favorable terms with synergies
exceeding $40 million;

--Better than expected ramp up of operating performance at Baton Rouge;
Fitch's base case incorporates roughly $35 million of property EBITDA in 2013;

--General operating outperformance relative to Fitch's pro forma base case of
roughly $700 million in EBITDA over the next couple years.

Negative: Future developments that may, individually or collectively, lead to
negative rating action include:

--Pinnacle undertaking a significant development outside of River City phase
II. Ameristar Lake Charles, or outfitting River Downs for video lottery
terminals (VLTs);

--General operating underperformance relative to Fitch's pro forma base case
of roughly $700 million in EBITDA over the next couple years;

--Texas legalizing gaming in its 2013 legislative session, which would place
pressure on the Lake Charles and Bossier City markets;

--Deterioration in the macro-economic environment; Fitch's base case currently
incorporates the continuation of a slow-growth recovery in the U.S.

Fitch takes the following rating actions:

Pinnacle Entertainment, Inc.

--IDR affirmed at 'B';

--Senior Secured Credit Facility affirmed at 'BB/RR1'.

In addition, Fitch places the following issue ratings on Rating Watch
Negative:

Pinnacle Entertainment, Inc.

--Senior Unsecured Notes due 2017, 'BB-/RR2';

--Senior Subordinated Notes due 2020 and 2022, 'B-/RR5'.

Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--2013 Outlook: U.S. Gaming (Return Generation in Full Swing)

--U.S. Gaming Recovery Models - Third-Quarter 2012

--Corporate Rating Methodology

Applicable Criteria and Related Research:

2013 Outlook: U.S. Gaming (Return Generation in Full Swing)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696684

U.S. Gaming Recovery Models - Third-Quarter 2012

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=697752

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contact:

Fitch Ratings
Primary Analyst
Alex Bumazhny, CFA, +1-212-908-9179
Associate Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Michael Paladino, CFA, +1-212-908-9113
Senior Director
or
Committee Chairperson
James Rizzo, CFA, +1-212-908-0548
Senior Director
or
Media Relations
Brian Bertsch, +1 212-908-0549 (New York)
brian.bertsch@fitchratings.com
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