The downgraded ratings based on S&P ratings definitions suggest:
- CCM Merger, Inc. (MotorCity Casino) as a corporate credit risk (rated B) is “more vulnerable to nonpayment of its obligations” than other companies; and suggest that
- Nearly $300 million in junk bonds issued by CCM Merger, Inc. (rated CCC+) to fund the Ilitch acquisition of MotorCity Casino are “currently vulnerable to nonpayment;” and also that
- “In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.”
Troubled Company Reporter, a service of Internet Bankruptcy Library (IBL), has tracked the concerns of these international credit rating companies over the last 18 months. However, one would have to be looking for CCM Merger, Inc. rather than MotorCity Casino, Detroit Entertainment, or any of the other entities that people recognize publicly as affiliated with MotorCity Casino. "CCM Merger, Inc." is MotorCity Casino in disguise.
Both S&P and Moody’s cited MotorCity Casino’s weaker-than-expected operating performance during the first year of Ilitch ownership, a highly competitive operating environment in the Detroit market, and risky leverage of debt to income that’s also higher than what had been anticipated as reasons for their actions.
CCM Merger, Inc. a unit of Ilitch Holdings, Inc./IH Gaming, Inc. is the survivor of Ilitch’s 2005 merger with Mandalay Resort Group’s Circus Circus Michigan, and the entity that raised $950 million in capitol needed to finance Ilitch's $525 million buyout of MGM Mirage/Mandalay Resort Group’s interests.
S&P
In 2006, S&P’s corporate credit rating for CCM Merger, Inc. dropped from B+ to B after one year of Ilitch ownership -- five or six levels below "Investment Grade." CCM Merger Inc. has acquired nearly $1 billion in debt on a venture that Crain’s Detroit has estimated to be worth $1 billion. Troubled Company Reporter estimates it would take the Casino eight years to pay off all the debt before owners could recognize any profits. The highest S&P rating is AAA. Anything below BBB is considered below “investment grade.”
“An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.”
S&P downgraded ratings on the $300 million in junk bonds that were issued to fund CCM Merger’s capital needs to a rating of CCC+ -- seven levels below “investment grade.”
“An obligation rated 'CCC' is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.”
Moody’s
Moody’s has assigned a corporate credit rating of B1 and ratings of B3 for the “junk bond” offerings:
“Obligations rated B are considered speculative and are subject to high credit risk”
Moody’s notes:
“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.“
The Ilitch organization has a history of risky leverage. Forbes Magazine estimates that the Detroit Tigers have the third worst debt to value ratios in Major League Baseball only two teams leveraged their assets more.
News reports during the 1990s consistently talked about leverage being one of the major factors in the downturn of Little Caesar’s Pizza.
And the amount of unattended or boarded-up real estate in downtown Detroit owned or controlled by the Ilitch Family for more than a decade is another example.
One would have to recognize CCM Merger, Inc. as the parent of MotorCity Casino in order to have caught this earlier in the year. Most people are more familiar with MotorCity Casino, Detroit Entertainment, Ilitch Holdings, etc. and not CCM Merger, Inc. (CCM is a reference to the former Circus Circus Michigan enterprise).
The Standard & Poor's analyst for this matter was:
Michael Scerbo
S&P Analyst
Phone (1) 212-438-7858
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