Moody’s downgrades Riviera Holdings, cites earnings decline

Moody's Investors Services on Monday downgraded Riviera Holdings Corp.'s company and debt ratings and placed the gaming company on review for further possible action, citing a $2.5 million year-over-year decline in earnings.

"The downgrade reflects the ... decline at Riviera's Las Vegas property between the fiscal fourth quarter 2011 and the prior year, along with the fact the property reported negative (earnings before interest, taxes, depreciation and amortization) of about $8 million in fiscal 2011," Peggy Holloway, Moody's vice president, senior credit officer, wrote in a report.

Riviera Holdings' decision to sell the Black Hawk resort in Colorado to Monarch Casino & Resort also factored in Moody's decision to downgrade the company's debt. The Black Hawk property generated EBITDA of $9.7 million last year.

Monarch obtained the resort's Colorado gaming license on Thursday, with the sale expected to close by the end of the month.

"The review for possible downgrade reflects Moody's view that Riviera may choose not to use all of the proceeds from the sale of Black Hawk to repay all of its outstanding debt," Holloway wrote. "Although Riviera's credit agreements require all net proceeds from the Black Hawk sale to be used to repay debt, there is a chance the company and its lenders may agree to amend this provision."

Holloway said if that happens, the ratings "would likely be downgraded," reflecting the rating agency's view that operating results of the Riviera on the Strip "will not rebound quickly, thereby forcing the company to draw down cash reserves to support operations."

Moody's downgraded the corporate and probability of default ratings from B3 to Caa1.

The rating agency also downgraded $83 million in debt that is due in April 2016.