Moody's downgrades Golden Nugget debt


Tilman Fertitta talked, and Wall Street didn't like what it heard.

On Friday Moody's Investors Service downgraded debt on the Golden Nugget hotel-casinos in Las Vegas and Laughlin.

The move came two days after Tilman Fertitta, president and CEO of Golden Nugget parent company Landry's Restaurants Inc., released second-quarter financial reports that showed revenues in the company’s gaming division was down more than 15 percent.

Moody's downgraded the debt, covering $545 million worth of upgrades and the addition of a yet-to-open hotel tower, incurred since Landry's took over in 2005.

Analysts rated several categories of debt and made the following observations:

"This is due to the company's persistently weak operating performance and increasing debt levels, which have resulted in deterioration in liquidity and debt protection measures", stated Bill Fahy, Senior Analyst. "The severe downturn in the Las Vegas market continues to negatively impact the company's earnings, margins, and cash flow. At the same time, the company is funding a major expansion at its Las Vegas property with additional debt. As a result, we believe that Golden Nugget's capital structure is unsustainable at its current level of operating performance."

 

Here's the entirety of the Moody's release:

New York, July 24, 2009 -- Moody's Investors Service today downgraded the Probability of Default rating (PDR) as well as the Corporate Family rating (CFR) of Golden Nugget Inc. (Golden Nugget) to Ca from Caa1. At the same time, Moody's lowered the company's first lien senior secured rating to Caa3 (LGD 3, 33%) from B3 (LGD 3, 33%) and the second lien senior secured rating to C (LGD5, 85%) from Caa3 (LGD 5, 85%). The outlook is stable.

The downgrade of the PDR to Ca reflects our view that the probability that Golden Nugget will default on its debt obligations over the next year has materially increased. "This is due to the company's persistently weak operating performance and increasing debt levels, which have resulted in deterioration in liquidity and debt protection measures", stated Bill Fahy, Senior Analyst. "The severe downturn in the Las Vegas market continues to negatively impact the company's earnings, margins, and cash flow. At the same time, the company is funding a major expansion at its Las Vegas property with additional debt. As a result, we believe that Golden Nugget's capital structure is unsustainable at its current level of operating performance."

Ratings downgraded are:

- Corporate Family Rating to Ca from Caa1

- Probability of Default Rating to Ca from Caa1

- $50 million guaranteed 1st lien revolving credit facility rating to Caa3 (LGD 3, 33%) from B3 (LGD 3, 33%)

- $210 million guaranteed 1st lien term loan to Caa3 (LGD 3, 33%) from B3 (LGD 3, 33%)

- $120 million guaranteed 1st lien delayed-draw term loan to Caa3 (LGD 3, 33%) from B3 (LGD 3, 33%)

- $165 million guaranteed 2nd lien term loan to C (LGD 5, 85%) from Caa3 (LGD 5, 85%)

Golden Nugget's Ca Probability of Default rating reflects the company's high probability of default -- possibly in the form of a distressed exchange transaction -- in the near to medium term given its weak operating performance and overall weak debt protection measures.

The stable outlook reflects our view that the Ca Corporate Family and Probability of Default ratings appropriately reflect the high level of risk for the company.

The principal methodology used in rating the Golden Nugget was Moody's Global Gaming Methodology, which can be found at www.moodys.com 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.

Moody's last rating action for Golden Nugget occurred on February 27, 2009, when we downgraded the Corporate Family and Probability of Default ratings to Caa1 from B3 with a negative outlook.

Golden Nugget, Inc. (Golden Nugget), headquartered in Las Vegas, Nevada, owns and operates the Golden Nugget hotel, casino, and entertainment resorts in downtown Las Vegas and Laughlin Nevada. Annual revenue is approximately $265 million. The Golden Nugget is a wholly-owned unrestricted subsidiary of Landry's Restaurants, Inc.