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Non-Tech : Argosy Gaming Co. (AGY) -- Ignore unavailable to you. Want to Upgrade?

To: Ram Seetharaman who wrote (163)	5/24/1999 10:13:00 AM
From: Kip518	Read Replies (1) \| Respond to of 259

May 21, 1999 15:38 S&P revises Argosy Gaming Co rating outlook (Press release provided by Standard & Poor's) NEW YORK, May 21 - Standard & Poor's today revised its rating outlook on Argosy Gaming Co. to positive from stable. The single-'B'-plus corporate credit rating and single-'B'-minus subordinated debt rating for the company were affirmed. In addition, Standard & Poor's assigned its single-'B'-minus rating to the company's proposed $200 million senior subordinated note issue due June 1, 2009. These securities will be privately placed under Rule 144A. Also, a single-'B'-plus rating was assigned to the company's $200 million senior secured revolving credit facility due 2004. This facility can be increased to $250 million initially and $425 million within two years to fund the purchase of minority interests in Argosy's Lawrenceburg partnership. Proceeds from the notes offering and bank facility will refinance the company's existing 13.25% first mortgage note issue and redeem its 12% convertible subordinated note issue. The ratings on the 13.25% first mortgage note and 12% convertible subordinated note issues will be withdrawn once the tender offer and redemption are complete. The outlook revision reflects Argosy's increased financial flexibility and improved interest coverage as a result of the recapitalization. Also, first-quarter 1999 operating performance showed continued strong results from the Lawrenceburg, Ind. property and improved results at the company's other four casino properties. Alton, Ill.-based Argosy currently operates riverboats in Alton, Riverside, Mo., Baton Rouge, La., Sioux City, Iowa, and Lawrenceburg, Ind. The permanent casino in Lawrenceburg, which opened in early 1998, has been a strong cash flow generator. During the first quarter of 1999, the property generated about $28 million in earnings before interest, taxes, depreciation, and amortization (EBITDA), compared to $20 million in the prior-year period. Competition from a new Caesars boat, which opened in late 1998, has not impacted results thus far, but Hollywood Park's proposed riverboat, scheduled to open in the summer of 2000, could cause some dilution. Still, Argosy's proximity to Cincinnati, its quality facility and hotel amenities, and the depth of the overall market should mitigate downside risk. Potential legalization of gaming in Kentucky is a concern, but it is unclear if it will occur, or in what form it would take. Under the current partnership structure, Argosy receives 57.5% of the Lawrenceburg facility's cash flows. The partnership agreement has a "put" provision, which beginning Dec. 10, 1999, enables any limited party to sell. The outcome regarding ultimate ownership is uncertain, but Standard & Poor's has factored a possible purchase at a reasonable multiple into its current rating. In addition to the Lawrenceburg property, management has reduced costs and enhanced marketing efforts at the Alton and Riverside properties. This has resulted in improved profitability at these facilities. The company has begun a renovation at Alton, which should enhance its competitive position longer term. The Baton Rouge property remains a disappointment despite performing better in the first quarter of 1999. The property should benefit from the elimination of video poker in the East Baton Rouge parish in mid-1999 and the renovation of the boat to feature a video poker area. The refinancing and new bank facility add some additional financial flexibility and will enable Argosy to enhance its competitive position in its markets longer term. Pro forma for the offering and based on current operating trends, cash flow coverage of interest expense is expected to improve to about 2.5 times (x). Argosy's bank facility is rated single-'B'-plus, the same as the corporate credit rating. The facility, a $200 million senior secured revolving credit facility due 2004, is secured by substantially all assets of the company. In simulating a default scenario, Argosy's cash flows were significantly reduced from current levels and capitalized with a conservative EBITDA multiple. The resulting value does not suggest full recovery of the loan facility if a payment default were to occur. OUTLOOK: POSITIVE Ratings have upside potential if a favorable resolution is reached with the Lawrenceburg partnership situation, if operating performance continues to strengthen, and if there is no significant negative impact when Hollywood Park enters the Indiana market. Ratings improvement would also depend on the status of legalization of gaming in Kentucky.