Recovery Report: Cannery Casino Resorts' $860M Secured Financing
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| Publication Date: Apr 11, 2007 12:40 EST |
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 | Recovery Report: Cannery Casino Resorts' $860M Secured Financing | |
| | | Publication date: 11-Apr-07, 12:40:49 EST | |
Reprinted from
RatingsDirect
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On April 11, 1007, Standard & Poor's Ratings Services assigned its loan and recovery ratings to
Cannery Casino Resorts LLC's proposed $745 million first-lien senior secured credit facility, which consists of a $75 million revolving credit facility due 2012, a $350 million first lien term loan due 2013, and a $320 million delayed draw term loan due 2013. The loan was rated 'BB-' (one notch higher than the corporate credit rating on the company) with a recovery rating of '1', indicating the expectation for full recovery of principal in the event of a payment default.
In addition, Standard & Poor's assigned its loan and recovery ratings to Cannery's proposed $115 million second-lien term loan due 2014. The loan was rated 'B-' (two notches lower than the corporate credit rating) with a recovery rating of '5', reflecting the expectation for negligible (0%-25%) recovery of principal in the event of a payment default.
The credit facility also includes provisions for an incremental $150 million of additional borrowing aggregated between the first- and second-lien tranches. Given that the incremental facility is uncommitted and the company has not demonstrated an immediate intent to utilize the provision, our recovery analysis has not factored in the additional borrowing. Should the company request and receive additional funds under the incremental facility, our recovery ratings will be reviewed.
(For the corporate credit rating rationale, see Standard & Poor's Ratings Services'
research report on Cannery Casino published earlier today.)
Table 1
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Cannery Casino Resorts LLC--Credit Profile
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Corporate credit rating
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B+/Positive/--
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Facility/Issue
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Issue rating
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Recovery rating
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Expected recovery (%)
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Maturity
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Repayment
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$75M revolver
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BB-
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1
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100
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2012
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Bullet
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$350M first-lien term loan B
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BB-
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1
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100
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2013
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1% per year; final bullet
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$320M-first-lien delayed draw term loan B
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BB-
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1
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100
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2013
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1% per year; final bullet
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$115M second-lien term loan
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B-
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5
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0-25
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2014
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Bullet
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Recovery Analysis |
Simulated default scenario|
The default scenario considers the potential for a downturn in the highly competitive Las Vegas locals market, as well as a slower-than-expected ramp-up for both Cannery East and The Meadows following their openings, occurring at a time when the company is highly leveraged. In this scenario, gaming operators that cater to Las Vegas locals experience lower spend per customer and, in response, increase promotional spending. Given Cannery's weaker competitive position and less access to capital as compared with larger gaming operators, the company's two existing Las Vegas properties generate lower gaming revenue than previously expected.
Standard & Poor's simulated payment default scenario also contemplates:
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LIBOR rising by 200 basis points;
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Interest rates on the first-lien credit facility increasing by 200 basis points to reflect the higher risk resulting from the borrower's simulated credit deterioration;
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That the revolving credit facility is fully drawn at the time of default; and
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A $22 million priority claim from the outstanding balance of the furniture, fixtures, and equipment facility.
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Valuation|
In evaluating the recovery prospects associated with the underlying collateral, Standard & Poor's used an enterprise value methodology. Cannery Casinos Resorts represents the entire enterprise. To calculate the emergence enterprise value, we stressed EBITDA to the point where it represents a 23% decline from projected pro forma 2009 EBITDA, approximated adjusted interest expense, and applied an emergence multiple of 7x.
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Results|
Using the 7x EBITDA multiple under our simulated default scenario, we arrive at an enterprise value of $840 million, resulting in full recovery of principal for first-lien lenders and negligible (0%-25%) recovery for second-lien lenders.
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Transaction Summary |
Table 2
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Transaction Summary
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First-lien facility
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Second-lien facility
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Borrower
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Cannery Casino Resorts LLC and its wholly owned subsidiary, Washington Trotting Association Inc.
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Cannery Casino Resorts LLC and its wholly owned subsidiary, Washington Trotting Association Inc.
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Guarantors
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Cannery Casino Resorts and each existing and future direct and indirect subsidiary
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Cannery Casino Resorts and each existing and future direct and indirect subsidiary
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Structure
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The revolver shall terminate and all amounts outstanding shall be due and payable in full in five years. The term loan and delayed-draw term loan shall terminate and all amounts outstanding shall be due and payable in full in six years. Term loan amortization shall be 1% annually until maturity. Delayed-draw term loan amortization shall be 1% annually, commencing 21 months after closing, until maturity.
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The second-lien term loan shall terminate and all amounts outstanding shall be due and payable in full in seven years.
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The following mandatory payments are applicable: 50% of excess cash flow if leverage is greater than 5.0x, 25% of excess cash flow if leverage is between 5.0x and 4.5x, 100% of net proceeds from sale of assets, 100% net proceeds from debt issuances, 50% of net proceeds from equity issuances, 100% of proceeds from any Rampart Lease termination payment, and 100% of proceeds from casualty and condemnation proceeds.
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The following mandatory payments are applicable: 50% of excess cash flow if leverage is greater than 5.0x, 25% of excess cash flow if leverage is between 5.0x and 4.5x, 100% of net proceeds from sale of assets, 100% net proceeds from debt issuances, 50% of net proceeds from equity issuances, 100% of proceeds from any Rampart Lease termination payment, and 100% of proceeds from casualty and condemnation proceeds. All mandatory prepayments for the second lien are applicable only after the first-lien facility has been repaid.
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Security package
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All present and future shares of capital stock of each of the borrower's present and future subsidiaries, all present and future intercompany debt, all present and future property and assets, and all proceeds and products of the company’s present and future property and assets
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Secured by a second-priority claim on all present and future shares of capital stock of each of the borrower's present and future subsidiaries, all present and future intercompany debt, all present and future property and assets, and all proceeds and products of the company’s present and future property and assets
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Legal jurisdictions/issues
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State of New York; no material issues
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State of New York; no material issues
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Key covenants
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Expected to include (but not yet finalized) a maximum total leverage and a minimum interest coverage ratio
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None
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Analytic services provided by Standard & Poor's Ratings Services (Ratings Services) are the result of separate activities designed to preserve the independence and objectivity of ratings opinions. The credit ratings and observations contained herein are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. Accordingly, any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision. Ratings are based on information received by Ratings Services. Other divisions of Standard & Poor's may have information that is not available to Ratings Services. Standard & Poor's has established policies and procedures to maintain the confidentiality of non-public information received during the ratings process.
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