Fitch Assigns Initial 'B' IDR to Marina District Finance Co. Inc.; Rates Secured Notes 'BB-/RR2'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned initial ratings to Marina District Finance Company, Inc. (MDFC) as follows:

--Issuer Default Rating (IDR) 'B';

--Senior secured credit facility 'BB/RR1';

--Senior secured first-lien notes 'BB-/RR2'.

The Rating Outlook is Stable. MDFC is the issuing subsidiary of the entity that owns the Borgata resort casino in Atlantic City, New Jersey. MDFC is part of a 50/50 joint venture between Boyd Gaming Corp. (Boyd; IDR 'B+' with a Negative Outlook) and MGM Resorts International (MGM; IDR 'CCC'). MGM's 50% interest in the Borgata JV is currently being held in a divesture trust pursuant to an agreement with New Jersey gaming authorities. Boyd has the right of first refusal on any offer for the property, so it remains in a good position to monitor the divestiture process.

MDFC is proposing an issuance of $725 million of first-lien, senior secured notes, which is expected to be split into two tranches between 5-year and 8-year tenors. In addition, MDFC is entering into a new revolving credit facility with capacity of $150 million that is expected to be $75 million drawn upon closing. The $800 million in expected proceeds from the transaction will repay roughly $630 million that is outstanding on MDFC's existing credit facility, fund a partner dividend of about $150 million, and the balance will pay transaction fees. Pursuant to the amended operating agreement between MGM and Boyd related to the sale of MGM's 50% interest in the Borgata JV, Boyd will receive roughly $100 million from the one-time, transaction-related dividend.

The primary considerations for the ratings of MDFC include:

--Borgata's high asset quality and market leading position in the nation's second largest market with an attractive tax-rate environment;

--the lack of geographic diversification and single-site nature of the stand-alone MDFC credit profile;

--a weak Atlantic City market that is not expected to improve meaningfully in the near term, as well as uncertainty regarding the potential for changes to the gaming environment in New Jersey and competing markets;

--Borgata's solid free cash flow profile supported by minimal development/project capex for the foreseeable future, that should support some absolute debt reduction over the next couple of years;

--pro forma leverage of roughly 4.3 times (x), which Fitch estimates may increase slightly in the near term before declining to the 4.00x-4.25x range through 2011 and below 4.0x in 2012;

--pro forma interest coverage of around 2.3x, which Fitch estimates should remain comfortably above 2x over the next couple of years.

Fitch calculates adjusted EBITDA at Borgata was $185 million for the last 12 months (LTM) ended June 30, 2010. Fitch anticipates further near-term declines in Borgata's EBITDA due to the persistent competitive pressure in surrounding markets, most recently the addition of table games in Pennsylvania.

However, Borgata's free cash flow (FCF) profile is solid, as Fitch estimates roughly $50-$75 million in annual FCF after interest costs and capex over the next couple of years. The discretionary FCF may be used for some absolute debt reduction and provides some cushion that underpins Fitch's Stable Outlook on MDFC.

There are no maintenance financial covenants in the notes, although Fitch expects a 2.0x coverage covenant for additional indebtedness. Fitch also expects the credit facility will have a minimum EBITDA covenant of $150 million, a 4.0x leverage covenant related to the restricted payment basket (although tax distributions will still be allowed above 4.0x), and a $30 million minimum liquidity covenant.

MDFC RATINGS RELATIVE TO BOYD:

Fitch recognizes:

--The Borgata is the most profitable casino asset in Boyd's portfolio and has value as the top asset (by far) in the second largest market in the U.S.;

--Boyd is the operator of the Borgata and managing member of the joint venture;

--due to an associated amendment to the JV operating agreement that resulted in an elimination of participation rights previously held by MGM, Boyd is now consolidating the financial results of Marina District Development Company, LLC (MDDC), the intermediate holding company of MDFC, and reflecting a non-controlling interest for the 50% stake it does not own.

However, the following factors support a weak linkage in the ratings:

--The debt at MDFC is non-recourse to Boyd and there are no cross default provisions to Boyd debt;

--the strategic linkage and synergy between MDDC/MDFC and the rest of Boyd's portfolio is limited: Borgata has its own separate loyalty program, there is minimal cross-market play, and there is no common brand between the Borgata and the rest of Boyd's portfolio.

Fitch believes that there would be little reason for Boyd to provide significant support to MDFC in a distressed scenario at the subsidiary level, particularly if the company maintains only 50% ownership after MGM sells its interest. As such, the relative probability of default and IDRs of MDFC and Boyd are only weakly linked in Fitch's view. Fitch will consider any impact to Boyd's ratings concurrently with second quarter results, which will be released on Aug. 3, 2010. Fitch notes that given the weak linkage, a downgrade of Boyd's IDR to 'B' would not impact the MDFC IDR or other instrument ratings.

RECOVERY RATINGS:

MDFC's Recovery Ratings (RR) reflect Fitch's expectations of relative recovery characteristics of MDFC's obligations following default and upon emergence from insolvency. Based on its recovery scenario, Fitch estimates full recovery of the bank debt, which equates to a 'BB/RR1' rating or a three-notch positive differential from the 'B' IDR. Fitch estimates superior recovery prospects for the first-lien secured notes in the 71%-90% range, which equates to a 'BB?/RR2' rating or a two-notch positive differential from the 'B' IDR. The credit facility and the notes are both secured by a first-priority lien on substantially all material assets. However, the credit facility has priority payment in connection with any foreclosing of the collateral or insolvency proceedings pursuant to an intercreditor agreement. As a result, the credit facility has priority in Fitch's recovery waterfall analysis.

MDFC's ratings reflect the application of Fitch's current criteria, which are available at 'www.fitchratings.com' and specifically include the following reports:

--'Parent and Subsidiary Rating Linkage (Fitch's Approach to Rating Entities Within a Corporate Group Structure)' (July 14, 2010);

--'Corporate Rating Methodology' (Nov. 24, 2009);

--'Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers' (Nov. 24, 2009);

--'Liquidity Considerations for Corporate Issuers' (June 12, 2007).

Additional information is available at 'www.fitchratings.com'.

Related Research:

Parent and Subsidiary Rating Linkage Criteria Report

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=534826

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=489018

Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=489006

Liquidity Considerations for Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666

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