excerpted from
IBL - InterNet Bankruptcy Library
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T R O U B L E D C O M P A N Y R E P O R T E R
Tuesday, October 17, 2006, Vol. 10, No. 247CCM MERGER: Moody's assigns Loss-Given-Default Ratings
In connection with Moody's Investors Service's implementation of its new Probability-of-Default and Loss-Given-Default rating methodology for the gaming, lodging and leisure sectors, the rating agency confirmed its B1 Corporate Family Rating for CCM Merger Inc.
Moody's also revised or held its probability-of-default ratings and assigned loss-given-default ratings on these debentures:
Debt Issue
Old POD
Rating
New POD
Rating
LGD
Rating
Projected
Loss-Given-
Default
Five Year Senior
Secured Revolver
B1
Ba3
LGD3
35%
Seven Year Senior
Secured Term Loan B
B1
Ba3
LGD3
35%
8% Senior Secured notes
BR
B3
LGD5
88%
Moody's explains that current long-term credit ratings are opinions about expected credit loss which incorporate both the likelihood of default and the expected loss in the event of default. The LGD rating methodology will disaggregate these two key assessments in long-term ratings. The LGD rating methodology will also enhance the consistency in Moody's notching practices across industries and will improve the transparency and accuracy of Moody's ratings as Moody's research has shown that credit losses on bank loans have tended to be lower than those for similarly rated bonds.
Probability-of-default ratings are assigned only to issuers, not specific debt instruments, and use the standard Moody's alpha-numeric scale. They express Moody's opinion of the likelihood that any entity within a corporate family will default on any of its debt obligations.
Loss-given-default assessments are assigned to individual rated debt issues -- loans, bonds, and preferred stock. Moody's opinion of expected loss are expressed as a percent of principal and accrued interest at the resolution of the default, with assessments ranging from LGD1 (loss anticipated to be 0% to 9%) to LGD6 (loss anticipated to be 90% to 100%).
CCM Merger Inc. owns and operates MotorCity Casino in Detroit,Michigan.
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T R O U B L E D C O M P A N Y R E P O R T E R
Tuesday, July 4, 2006, Vol. 10, No. 157
CCM MERGER: Moody's Confirms Corporate Family Rating at B1, Outlook Negative
Moody's Investors Service confirmed CCM Merger Inc.'s B1 corporate family rating, B1 senior secured bank loan rating and B3 senior unsecured note rating. A negative rating outlook was assigned. These rating actions conclude the review process begun on April 17, 2006.
The confirmation considers that despite a recent decline in operating results and high expected peak leverage due to upcoming expansion activity, CCM Merger continues to benefit from being one of only three casinos authorized to operate in Detroit, MI, a high density gaming market that has exhibited a good historical growth pattern.
CCM Merger is also expected to derive some positive impact from the opening of its expanded property as well as the lower tax rate relative to the opening of the expansion. Under Michigan statute, the gaming tax rate for the Detroit casinos will drop from 24% to 19% once the expanded property is opened.
Additionally, in the near-term, the Detroit market should receive some benefit from the smoking ban in Windsor that went into effect on June 1st.
The negative ratings outlook acknowledges CCM Merger's recent lower than expected operating performance which highlighted its vulnerability to aggressive promotional activities by its competitors, despite the historical strength and positive long- term outlook for the Detroit market and recent market share improvement. As a result, CCM Merger is now weakly positioned in its rating category and more vulnerable to a ratings downgrade if future operating results fall short of Moody's expectations.
Moody's most recent rating action on CCM Merger occurred on April 17, 2006 when the company's ratings were placed on review for possible downgrade in light of the company's operating performance in 2005 that was materially below Moody's expectation.
CCM Merger, Inc. owns and operates MotorCity Casino in Detroit, Michigan. The company is currently undergoing a $275 million expansion which will include additional gaming space, restaurant outlets and a new hotel.
T R O U B L E D C O M P A N Y R E P O R T E R
Monday, June 26, 2006, Vol. 10, No. 150
CCM MERGER: High Debt Levels Prompt S&P to Downgrade Ratings
Standard & Poor's Ratings Services lowered its ratings on Detroit-based casino owner and operator CCM Merger Inc., including its corporate credit rating to 'B' from 'B+'.
Additionally, all ratings were removed from CreditWatch where they were placed with negative implications on April 7, 2006.
The outlook is stable.
"The downgrade reflects Standard & Poor's assessment that the combination of weaker-than-expected operating performance during 2005, a highly competitive operating environment in the Detroit market, and high debt levels associated with the ongoing expansion project, have resulted in higher-than-expected near-term peak debt leverage that would no longer be consistent with the former rating," said Standard & Poor's credit analyst Michael Scerbo.
As a result of the 6% gaming tax increase effective Sept. 1, 2004, and a much more aggressive marketing environment by competitors, CCM's earnings during 2005 declined materially from the prior year despite revenues remaining relatively flat. This competitive environment continued during the first quarter of 2006 and is likely to remain the case in the near to intermediate term.
Still, over the long term, the market is expected to stabilize, which will enable CCM to reduce debt balances once the expansion of its gaming facility is complete.
However, during the expansionary period, CCM's adjusted total debt to EBITDA is expected to reach 8x in 2006, before potentially declining to levels more appropriate for the new rating in subsequent years. Operating disruptions associated with construction are expected to be limited, given the location of the expansion behind the current facility.
T R O U B L E D C O M P A N Y R E P O R T E R
Wednesday, April 19, 2006, Vol. 10, No. 92
CCM MERGER: Slow Revenue Growth Prompts Moody's Ratings Review
Moody's Investors Service placed the ratings on CCM Merger Inc., on review for possible downgrade in light of slow growth of gaming revenues in the Detroit market, and the company's operating performance in 2005 that was materially below Moody's expectations due to unexpectedly competitive market conditions.
Additionally, weak financial performance relative to expectations is occurring at a time when the company's risk profile is elevated due to construction of its permanent gaming facility in Detroit. However, Moody's notes that CCM's cash balance at year-end 2005 is sufficient to support the company's capital spending program.
The review for possible downgrade will consider the overall outlook for revenue growth in the Detroit market, and the degree to which the recently aggressive promotional environment will impact the company's leverage and coverage measures in 2006 in comparison to prior Moody's expectations.
Moody's anticipates concluding this review after the receipt of first quarter results, further discussions with management concerning plans to manage through challenging market conditions, but in any event, within the next 60 days.
Moody's previous rating action on CCM occurred on Jul. 6, 2005 when initial ratings were assigned to the company. The ratings included:
- a B1 corporate family rating;
- a B1 rating on the $100 million senior secured revolving credit facility due 2010;
- a B1 rating on the $650 million senior secured term loan B due 2012; and
- a B3 rating on the $300 million senior unsecured notes due 2013.
CCM Merger, Inc., owns and operates MotorCity Casino in Detroit, Michigan. For the eighth month period ended Dec. 31, 2005, the company generated approximately $319.9 million in adjusted gross revenues.
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T R O U B L E D C O M P A N Y R E P O R T E R
Tuesday, April 11, 2006, Vol. 10, No. 86
CCM MERGER: Poor Performance Cues S&P to Put B+ Rating on Watch
Standard & Poor's Ratings Services placed its ratings on CCM Merger Inc., including the 'B+' corporate credit rating, on CreditWatch with negative implications. Detroit-based CCM Merger is the parent company of MotorCity Casino. The CreditWatch listing reflects a decline in MotorCity's operating performance in 2005 relative to Standard & Poor's previous expectations.
EBITDA performance in 2005 fell short of expectations partly due to a more competitive marketing environment in the Detroit market. CCM Merger does not publicly file its financial statements.
Even though revenue growth in 2006 has been positive through February, Standard & Poor's will review CCM Merger's EBITDA expectations for 2006 and in subsequent years, as well as expectations for competitive operating conditions in the Detroit gaming market, when resolving its CreditWatch listing. If the ratings review results in a downgrade, Standard & Poor's expects it would be limited to one notch.
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T R O U B L E D C O M P A N Y R E P O R T E R
Friday, July 8, 2005, Vol. 9, No. 160CCM MERGER: Moody's Rates $625 Million Secured Bank Facility at B1
Moody's Investors Service assigned a B1 Corporate Family Rating to CCM Merger, Inc. along with a B1 rating on the company's existing $625 million 1st lien senior secured bank facility. At the same time, Moody's assigned a B3 rating to CCM's new $200 million senior unsecured notes due 2013.
Proceeds from the new $200 million senior notes will be used to refinance CCM's $200 million existing 2nd lien term loan. The 2nd lien term loan, along with $550 million of 1st lien bank debt were used to fund the April 2005 acquisition of the 75% interest in MotorCity Casino not controlled by CCM's principal shareholder, Marian Ilitch.
The ratings consider CCM's high leverage and single asset profile. Pro forma Debt/EBITDA is about 5.2x, however that is expected to increase to almost 7.0x over the next 18-month period as a result of a $275 million expansion project that is expected to be funded with $50 million from cash flow and $225 million of additional senior secured revolver borrowings made available under a greenshoe option contained in the bank loan agreement. Leverage is not expected to decline to below 5.0x until two years following the opening of the expansion.
The two notch difference between the company's B1 senior secured bank loan rating and B3 senior unsecured note rating acknowledges the substantial amount of senior secured debt that will remain in CCM's capital structure over the next few years.
Positive ratings consideration is given to the successful operating history of the casino and the considerable size and density of the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Detroit gaming market. Detroit's win per unit statistics are among the best of all domestic gaming markets.
Additionally, the Detroit market benefits from Michigan's passageof Proposal 1 in November 2004 that requires a voter referendum for new forms of gaming in that state. Currently, MotorCity Casino is one of three commercial casinos that are permitted to operate in Detroit. The rating also takes into account that the proposed expansion will fulfill CCM's obligation under its development agreement with the City of Detroit, and as a result, will make the company eligible for a reduced wagering tax from 24% to 19%.
The stable ratings outlook is based on the expectation that CCM will reduce acquisition and expansion related debt over time to a level more consistent with its rating. Despite the expectation of continued high leverage, favorable market characteristics including strong demographics, limited competition and high barriers to entry should make it possible for the company to generate free cash flow and reduce debt once the expansion is complete. Separately, the company's bank agreement has been amended so that prior to the completion of the expansion, there is no cash flow sweep, although 75% of excess cash flow will go into an account to be used for construction purposes. Following the completion of the expansion, however, 75% of excess cash flow will be applied towards term loan debt reduction.
CCM's single asset profile, high leverage, and expected free cash flow deficits through fiscal year 2008 limit its ratings upside.
The ratings could go down if CCM fails to comply with the terms of the development agreement with the City of Detroit and/or the company takes on a material amount of additional and unanticipated debt.
These new ratings were assigned:
CCM Merger, Inc. owns and operates MotorCity Casino in Detroit, Michigan. For the twelve-month period ended April 30, 2005, the company generated about $440 million in net revenue.
T R O U B L E D C O M P A N Y R E P O R T E R
Friday, July 1, 2005, Vol. 9, No. 154CCM MERGER: S&P Rates Proposed $625 Million Sr. Sec. Loan at B+
Standard & Poor's Ratings Services assigned its 'B+' corporate credit rating to Detroit, Michigan-based CCM Merger Inc., the parent company of MotorCity Casino.
At the same time, Standard & Poor's assigned its 'B+' rating and a recovery rating of '3' to the company's proposed $625 million senior secured credit facility, reflecting Standard & Poor's expectation that lenders would realize a meaningful recovery of principal (50%-80%) in the event of a payment default.
In addition, Standard & Poor's assigned its 'B-' rating to the company's proposed $200 million in senior unsecured notes due 2013, reflecting the large amount of priority debt in the capital structure.
Proceeds from the proposed debt issuances will refinance existing indebtedness used to fund the acquisition of MotorCity. The outlook is stable.
"The ratings reflect the expectation for high debt levels over the next few years to fund the acquisition and the future expansion of MotorCity, as well as the company's reliance on a single-property for cash flow generation and construction risks associated with a proposed expansion," said Standard & Poor's credit analyst Emile Courtney. "These factors are partially mitigated by some barriers to new competition in Michigan, as commercial gaming cannot be expanded without a voter referendum, solid customer demographics, and expectations for stable cash flow generation," Mr. Courtney added.
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as of December 28, 2006
CCM Merger Issue Ratings
Corporate Credit Rating
B1
B/stable/--
Senior Secured Bank Credit Facility
($650 million)
Ba3
B/--/--
Senior unsecured
($300 million)
B3
CCC+
* The ratings from Aa to Ca by Moody's may be modified by the addition of a 1, 2 or 3 to show relative standing within the category.
**The ratings from AA to CC by Standard & Poor's, may be modified by the addition of a plus or minus sign to show relative standing within the category.
Equivalent Credit Ratings
Credit Risk
Moody's*
Standard & Poor's*
Investment Grade
Highest quality
Aaa
AAA
High quality (very strong)
Aa
AA
Upper medium grade (strong)
A
A
Medium grade
Baa
BBB
Not Investment Grade
Lower medium grade (somewhat speculative)
Ba
BB
Low grade (speculative)
B
B
Poor quality (may default)
Caa
CCC
Most speculative
Ca
CC
No interest being paid or bankruptcy petition filed
C
C
In default
C
D
Source: The Bond Market Association
* The ratings from Aa to Ca by Moody's may be modified by the addition of a 1, 2 or 3 to show relative standing within the category.
**The ratings from AA to CC by Standard & Poor's, may be modified by the addition of a plus or minus sign to show relative standing within the category.
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