Wednesday, January 21, 2009

Moody's downgrades MotorCity Casino's Credit Ratings for the second time in two months

Rating Action: CCM Merger, Inc.

Moody's downgrades CCM Merger to Caa1 from B3; negative outlook

Approximately $1 Billion of Rated Debt Affected.

New York, January 16, 2009 -- Moody's Investors Service today lowered CCM Merger, Inc.'s ("CCM") ratings in response to the company's recent disclosure that it will need to seek an amendment from its bank lending group in order to maintain compliance with its bank loan leverage covenant for the fiscal year ended December 31, 2008. The rating outlook is negative.

The following ratings were lowered:

  • Corporate Family Rating to Caa1 from B3
  • Probability of Default Rating to Caa1 from B3
  • $100 million 1st lien revolver expiring 2010 to B3 (LGD3, 34%) from B2 (LGD3, 34%)
  • $606 million 1st lien term loan B due 2012 to B3 (LGD3, 34%) from B2 (LGD3, 34%)
  • $300 million 8% senior unsecured notes due 2013 to Caa3 (LGD5, 87%) from Caa2 (LGD5, 87%)
Although CCM posted a slight increase in October monthly gaming revenues (2008 versus 2007) following the grand opening of its permanent casino facility, an 11% decline in December monthly gaming revenue -- the largest monthly decline in CCM's recent history -- placed the company in the position of not being able to meet its year-end debt/EBITDA bank loan covenant.

Moody's also believes the large decline in December 2008 monthly gaming revenues suggests that the pressure on earnings from weakened economic conditions has increased further. This heightened earnings pressure could more than offset the expected benefit to free cash flow in 2009 from the incremental earnings generated by the expansion and from substantially lower capital spending. As a consequence, free cash flow could be negative in 2009 and debt/EBITDA -- currently at about 7 times -- could increase further.

The negative outlook considers the uncertainty with regard to CCM's ability to obtain waivers and/or amendments and maintain access to its revolver availability. This availability will be needed to satisfy the May 2009 maturity of a $50 million Economic Development Corporation (EDC) bond. The negative outlook also incorporates Moody's opinion that an additional equity contribution by CCM's owner may be needed in order for the company to obtain the required amendments. A $25 million contribution by CCM's owners of cash equity to repay debt was made in September 2008 that helped CCM meet its September 30, 2008 debt/EBITDA covenant.

Ratings would likely be lowered if CCM is unable to obtain acceptable amendments or waivers from its lenders. The rating outlook could be revised to stable if covenant compliance issues are resolved in a manner that results in a sustainable capital structure and covenant compliance going forward.

Moody's last rating action for CCM was on December 4, 2008, when the company's corporate family rating was lowered to B3 from B2 and a negative rating outlook was assigned.

The principal methodology used in rating CCM was Moody's Global Gaming Methodology, which can be found at in the Credit Policy & Methodologies directory, in the rating Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.

CCM Merger, Inc. indirectly owns and operates the MotorCity Casino in Detroit, Michigan. The company generated net revenue of about $480 million for the fiscal year ended December 31, 2008.

New York
Keith Foley
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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