Thursday, January 22, 2009

Ilitch Casino's credit downgraded again; $50M bond payment coming due; may need to raise cash


MotorCity credit rating downgraded, may need to raise cash

By Nancy Kaffer

January has brought a slate of bad news for CCM Merger Inc., the financial entity that serves as parent company to MotorCity Casino, owned by Marian Ilitch.

Moody’s Investors Services has downgraded CCM’s credit rating for the second time in two months, questioning the company’s ability to meet its year-end debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio without amending its credit agreements.

For those amendments to happen, a statement on Moody’s Web site said, CCM’s owners might need to throw in more equity.

Depressed gaming revenues — down 11 percent in December — could offset incremental earnings from the completion of the casino’s expansion and the subsequent cessation of significant capital spending, according to the Moody’s statement. This could result in negative cash flow in 2009 and an increased debt-to-EBITDA ratio, currently at a debt limit of about seven times CCM’s EBITDA.

Those concerns come on the heels of a $25 million cash equity contribution made in September, necessary for CCM to meet its Sept. 30 debt-to-EBITDA covenant.

CCM’s negative rating outlook will affect about $1 billion in rated debt, according to a statement on Moody’s Web site.

The downgrade was prompted in part, according to the statement, by a CCM disclosure that it will need to seek such amendments from its bank lending group in order to comply with its bank loan leverage covenant for the fiscal year ended Dec. 31.

The statement noted that a $50 million Economic Development Corporation bond matures in May.

MotorCity ended 2008 with $464 million in revenue, according to the Michigan Gaming Control Board, and controls 33 percent of Detroit’s gaming market.

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