Fitch: Pinnacle/Ameristar FTC Merger Challenge Credit Neutral

  Fitch: Pinnacle/Ameristar FTC Merger Challenge Credit Neutral

Business Wire

NEW YORK -- June 3, 2013

The Federal Trade Commission's (FTC) challenge against Pinnacle
Entertainment's (Pinnacle) acquisition of Ameristar Casinos (Ameristar) is
largely a credit neutral event for the proposed combined company, according to
Fitch Ratings. We believe the FTC's complaint will have little impact on the
execution of the merger and the potential disposition of assets that Pinnacle
and/or Ameristar may look to execute would not be detrimental to the combined
entity's credit profile.

The FTC challenge could delay the merger if Ameristar and Pinnacle agree to
extend the merger agreement to address FTC's complaints in a more orderly
fashion, although we do not believe that scenario is likely. Pinnacle issued a
statement shortly after the complaint was announced saying that the company
disagrees with FTC's challenge and that they expect to finalize the
acquisition within the previously agreed upon timeframe.

The FTC complaint relates to concerns over the merged company's market
concentrations in the St. Louis, MO and Lake Charles, LA markets. The merger
agreement requires both companies to take necessary actions (including
divesting assets or placing them in trust) to comply with antitrust laws and
allows for divestiture of up to two assets.

If Pinnacle and/or Ameristar challenge the complaint, an Oct. 28, 2013
evidentiary hearing date has been set. If neither challenges the FTC, a
divestiture of certain assets would likely be the next step. Key candidates
for dispositions in the markets being questioned by the FTC are Pinnacle's
Lumiere Place Casino and Hotel (Lumiere) in St. Louis and Ameristar's $560
million-$580 million Lake Charles casino development, which is about 25%
complete. We believe it is likely that Pinnacle will dispose of Lumiere while
trying to preserve the Lake Charles project. However, we believe Pinnacle
would ultimately divest the Lake Charles project before jeopardizing the
merger.

We estimate that Lumiere accounts for 5%-7% of the combined company's property
level EBITDA. Therefore we would view disposition of the asset (especially at
a going rate multiple, e.g., 6.5x or higher) as credit neutral. Pinnacle's
credit facility agreement requires that asset sale proceeds be used to pay
down the drawn amount on the facility or be reinvested in the business, terms
that we expect will be included in the new facility at the merged entity.

The FTC's complaint against concentration in Lake Charles is surprising since
the Ameristar project has not yet been completed and because Pinnacle was the
original license holder for that project before forfeiting it in 2010.
Divesting the Lake Charles project is problematic for Pinnacle, as Ameristar
has already spent $145 million on the project and the sale of an unfinished
development site could be challenging. In addition, the gaming license
associated with the development is contingent on the project being complete by
2014.

We believe that Pinnacle may attempt to preserve the Lake Charles project;
however, construction could be suspended while Pinnacle explores its options.
A suspension or divestiture of the project would be a slight positive since it
would reduce the company's need to borrow and exposure to Texas legalizing
gaming.

Pinnacle could be allowed to proceed with the merger by FTC with Lumiere being
placed into a divestiture trust. When Penn National (Penn) acquired Argosy
Casinos in 2005, Penn found buyer Columbia Sussex for Argosy Baton Rouge
casino prior to the merger and the FTC allowed the merger to proceed with the
asset being placed into a divestiture trust.

Fitch is not aware of other precedent where a gaming company had to divest of
an unfinished project to comply with antitrust laws. However, it is reasonable
to think that Pinnacle could obtain some flexibility in terms of timing from
FTC and the Louisiana gaming regulators. One possible scenario is the FTC
permitting the merger to close under a condition that work stops on the Lake
Charles site until the development is either divested or Pinnacle successfully
argues that the development of a second casino does not violate antitrust
laws.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit
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opinions expressed are those of Fitch Ratings.

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