Fitch Assigns 'CCC+/RR6' to Boyd Gaming's Announced Sr. Unsecured Notes Due 2023

NEW YORK--()--Fitch Ratings assigns 'CCC+/RR6' to Boyd Gaming Corp.'s (Boyd) announced $500 million in senior unsecured notes due 2023. Fitch rates Boyd Issuer Default Rating (IDR) 'B' with a Stable Outlook. Fitch links the IDRs of Boyd and its wholly-owned subsidiary Peninsula Gaming LLC (Peninsula) and views them on a consolidated basis.

The proceeds of the new notes along with cash on hand will be used to make a cash tender offer for Boyd's $500 million in 9.125% senior unsecured notes. The transaction is viewed positively by Fitch as it is leverage neutral but could save Boyd roughly $10 million in interest expense, Fitch estimates.

KEY RATING DRIVERS

Boyd's 'B' IDR reflects a diversified asset base and healthy free cash flow (FCF) profile. These positive credit considerations are offset by Boyd's high, albeit sustainable, leverage and significant exposure to weak regional casino markets.

Fitch calculates gross leverage for Boyd for period ending March 31, 2015 at 7.2x, which includes Peninsula along with the $152 million seller's note at Peninsula's HoldCo. This offers minimal equity cushion as regional assets typically trade in 7x-8x multiple range (a bit higher now given the REIT-spin off potential). However, Fitch deems Boyd's capital structure sustainable when taking Boyd's healthy FCF profile. Boyd's stand-alone leverage is slightly better at 7x; however, Fitch believes including Peninsula in Boyd's ratios is appropriate given the high likelihood that Boyd merges Peninsula into its restricted group in the near-to-medium term. Boyd has stated that it intends to merge Peninsula into its restricted group and Peninsula's unsecured notes are callable at 106.28.

Boyd's FCF is strong for its rating level and reflects a limited development pipeline, heavy mix of LIBOR based bank debt and $920 million in federal-level NOLs as of Dec. 31, 2014. Fitch estimates Boyd's discretionary FCF run-rate at approximately $200 million, which includes about $75 million of FCF at Peninsula.

Fitch's estimate for Boyd's FCF run-rate incorporates (estimates include Peninsula):

--$536 million of latest 12 months (LTM) property EBITDA for period ending March 31, 2015;

--$60 million of corporate expense;

--$175 million of interest expense;

--$0 of income tax;

--$100 million of maintenance CapEx.

The strong FCF profile offsets the risk associated with Boyd's operating mix, which Fitch views unfavorably with a large exposure to mature and competitive regional markets.

KEY ASSUMPTIONS

Fitch's expectations are based on the agency's internally produced, conservative rating case forecasts. They do not represent the forecasts of rated issuers individually or in aggregate. Key Fitch forecast assumptions include:

--Fitch projects flat same store revenue growth in Boyd's Las Vegas Locals segment in 2015. Fitch projects 1% same store revenue declines in Boyd's Midwest/South and Peninsula segments in 2015, with the exception of Lake Charles where revenues decline by 20%.

--Fitch assumes that state and federal NOLs absorb all tax liability through the rating case horizon.

--Fitch has not incorporated any dividends or share repurchases in its rating case projections.

RATING SENSITIVITIES

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

--Boyd's debt/EBITDA ratio excluding Borgata moving towards 8x;

--Discretionary run-rate FCF declining towards or below $75 million;

--Same-store regional markets revenues continue to decline in the low-to-mid single digit range;

--Boyd pursuing a REIT spin-off or an M&A activity that would result in rent adjusted leverage to increase.

Positive: No positive rating action is expected over the next 12-24 months given the company's high leverage. However, positive rating action may result from:

--Debt/EBITDA declining below 6x;

--Discretionary run-rate FCF exceeding $200 million;

--Regional markets stabilizing or growing on same-store basis;

--Consolidation of Peninsula into Boyd's restricted group.

Fitch has the following ratings for Boyd and its related entities:

Boyd Gaming Corp.

--Long-term IDR 'B';

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

--Senior unsecured notes 'CCC+/RR6'.

Peninsula Gaming LLC (Peninsula Gaming Corp. as co-issuer):

--Long-term IDR 'B';

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

--Senior unsecured notes 'CCC+/RR6'.

Marina District Finance Company, Inc. (Borgata)

--Long-term IDR 'B-';

--Senior secured payment priority revolving credit facility 'BB-/RR1';

--Senior secured incremental term loan 'B+/RR2';

--Senior secured notes 'B+/RR2'.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 28, 2014);

--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (Nov. 18, 2014);

--'U.S. Gaming Recovery Tools (Fourth-Quarter 2014)' (April 27, 2015)

--'Fitch 50 (Structural Profiles of 50 Leveraged U.S. Credits)' (July 8, 2014);

--'U.S. Regional Gaming: Long-Term Headwinds Abound (A Study of Secular Trends in U.S. Regional Gaming)' (July 21, 2014).

Applicable Criteria and Related Research:

Fitch 50 (Structural Profiles of 50 Leveraged U.S. Credits)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=752040

U.S. Regional Gaming: Long-Term Headwinds Abound (A Study of Secular Trends in U.S. Regional Gaming)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751939

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=813588

U.S. Gaming Recovery Tools (Fourth-Quarter 2014)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865127

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984295

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Alex Bumazhny, CFA
Director
+1-212-908-9179
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Michael Paladino, CFA
Managing Director
+1-212-908-9113
or
Committee Chairperson
Mike Simonton, CFA
Managing Director
+1-312 368-3138
or
Media Relations
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
Alex Bumazhny, CFA
Director
+1-212-908-9179
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Michael Paladino, CFA
Managing Director
+1-212-908-9113
or
Committee Chairperson
Mike Simonton, CFA
Managing Director
+1-312 368-3138
or
Media Relations
Alyssa Castelli, +1-212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com