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, Vol. 10, No. 150
Headlines
Monday, June 26, Vol. 10, No. 150
Headlines
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.
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.
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