Moody’s downgrades Riviera’s debt for second time in 2012

Moody's Investors Services on Thursday downgraded Riviera Holdings Corp.'s corporate debt rating for the second time since April, citing concerns about the company's debt structure and its ability to return to profitability over the next few years operating just one casino in Las Vegas.

"The company's only asset generates negative (earnings before interest taxes, depreciation and amortization)," said the report co-authored by Moody's Vice President and Senior Credit Officer Peggy Holloway. Riviera Holdings posted a loss of $1.4 million in the first quarter. Second quarter results have not been released.

Holloway said she expects the 2,075-room Riviera will continue to be challenged financially given its location.

"Casinos located on the northern end of the Las Vegas Strip, like the Riviera Las Vegas, have struggled due to low foot traffic," Holloway wrote. "And while the Las Vegas Strip's recovery is gaining traction, primarily through improved hotel occupancy, Rivera Las Vegas' EBITDA has not yet benefited from these trends."

Riviera Holdings has $90 million in cash from the sale of its Colorado property. The company, which has $73.2 million in outstanding debt, is waiting for its lenders to tell them how the money from its Riviera Black Hawk resort will be spent.

"The rating outlook could return to stable if the company successfully negotiates covenant relief and determines the final use of proceeds of the sale of Black Hawk," Moody's said.

Riviera President and CEO Andy Choy declined to comment.

But Holloway expressed concern that "the company will have to rely on this cash to cover its debt service and maintenance capital expenditures given that its casino asset is not profitable on an EBITDA basis."

Riviera Holding's decision to sell Black Hawk Resort to Monarch Casino & Resort continues to factor in Moody's decision to downgrade the company's debt a second time. The Black Hawk property generated earnings of $9.7 million in 2011.

Moody's lowered the company's Corporate Family and Probability of Default ratings to Caa2 from Caa1, and assigned a negative rating outlook to the debt.

"Even though Moody's believes Riviera will use a portion of the proceeds from the sale of Riviera Black Hawk to pay down debt, the company will still be reliant upon the turnaround at the Riviera Las Vegas for improvement in earnings and future debt reduction," the two-page report said.

Holloway noted that a lack of diversification makes Riviera Holdings more "vulnerable to regional economic swings (and) market conditions."

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893.