Moody’s report on Landry’s laced with jargon

Moody's, um, downgrades Landry's, maybe? Or not.

The investment rating service Moody's changed its view on debt by Landry's Restaurants Inc., parent company of the Golden Nugget resorts in Las Vegas and Laughlin.

At least it appears it has, it's hard to know what to think after reading the jargon-heavy mishmash allegedly written to guide investors.

For starters, the new rating on Landry's debt is "direction uncertain," a term that's clearly not overly authoritative.

The report states:

"The review — direction uncertain reflects the possibility that Landry's successfully completes the re-financing of its capital structure and strengthens its liquidity over the near term."

Translation to English: Landry's might get a lower interest rate on its debt. That would save the company money to use elsewhere.

The report continues:

"However, the review also incorporates the possibility that the transaction is not completed or the terms and conditions are changed."

Translation to English: Landry's might be stuck with today's rates, or even something higher.

A bit later, the report discusses the consequences attached to these scenarios.

It states:

"In the event Landry's successfully completes the re-financing as proposed and operations perform as expected, the ratings would likely improve ... ."

And continues:

"However, in the event the re-financing is not successful, the company would be unable to repay its $400 million of 9.5 percent bonds, which can be put back to the company in late February, 2009.

This would be a material liquidity event and would likely result in a downgrade of the current ratings."

Translation: If Landry's gets lower interest payments and maintains sales, that would make the company a more solid investment.

If it can't make a deal and has to pay lenders a bunch of money later this month, that would be bad for people to whom Landry's owes money. That's because it is harder to repay a big loan than it is a smaller loan.

So what's the deal with all the jargon? Is it needed or would investors be better off with the plain-English version of events?

"That kind of wording is not really providing any useful information," said Irene Etzkorn, director of simplification practice for the consulting firm Siegel + Gale, llc., in New York.

The firm recently completed a survey that shows many people say a lack of clarity contributed to the murky Wall Street dealmaking that contributed to the global recession.

In short: Firms weren't clear when they described how a deal worked and investors were too timid or greedy to figure it out themselves.

Improving clarity can help rebuild trust, Etzkorn says.

Considering they were at the forefront of downfall by failing to forecast problems in many cases, ratings agencies could stand to benefit by writing more clearly about potential risk and reward, she said.

"They are under increasing scrutiny for the legitimacy of their ratings," Etzkorn says. "By weasel-wording, I think it only erodes the confidence."