Station Casinos downgraded after seeking debt exchange

Moody's Investors Service on Wednesday downgraded Station Casinos' probability of default rating from Caa2, or in poor standing, to Ca, or extremely speculative, a day after the gaming company announced it was seeking a private debt exchange.

Station Casinos announced Tuesday it hopes to issue a pair of 10 percent secured term loans due in 2016, pushing the earliest maturity date back four years.

The casino company's corporate family rating remained at Caa2.

CreditSights, an independent credit analysis firm, said Wednesday in a investor's report the "proposed exchanges will not forestall a bankruptcy" without the company seeking credit amendments from its banks.

Station Casinos "has its back against the wall as the company is likely to breach its financial covenants by the end of the year," CreditSights analyst Christopher Snow wrote.

Snow wrote that negotiations with the banks started last month after the company unsuccessfully tried "to exchange some of its subordinate debt for equity," during the summer.

The exchange offer, however, is contingent on 60 percent of the old notes being tendered before midnight Dec. 5.

In a note to investors, Moody's analysts wrote that there "is a high probability" Station Casinos will breach its bank covenants if the exchange is not successful, jeopardizing the company's ability to meet its debt burden.

CreditSights said the exchange could reduce Station Casinos debt by $1.4 billion and its interest expense by $70 million.

For the year, Station Casinos had $5.4 billion in long-term debt through the third quarter ended Sept. 30. The company paid $281.9 million in interest payments during that nine-month period.

Station Casinos' owners are also contemplating loaning the company between $450 million and $500 million. That owners' loan would be a unsecured, junior subordinate loan only if 82.5 percent of the old notes are exchanged.

Debt issues affect Station Casinos' 13 wholly owned properties but not the five properties co-owned with the Greenspun Corp. -- the recently opened Aliante Station, Green Valley Ranch Resort, Barley's, The Greens Supper Club, and Wildfire Lanes and Casino.

Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or 702-477-3893.