|By Steve Green, Las Vegas
SunMcClatchy-Tribune Regional News
Jan. 10, 2011--Two debt-rating services differed today on the outlook for the $8.5 billion CityCenter resort complex on the Las Vegas Strip.
Moody's Investors Service said CityCenter's credit-rating outlook is stable, while Standard & Poor's Ratings Services said its outlook is negative as CityCenter continues to struggle with a slow ramp-up period tied to the recession, access issues and limited spending on marketing.
Standard & Poor's also issued a preliminary speculative-grade "B-" corporate credit rating to CityCenter Holdings LLC after CityCenter's half owner and manager, MGM Resorts International of Las Vegas, announced plans to privately issue $1.1 billion in notes to refinance part of CityCenter's $1.85 billion senior secured credit facility.
CityCenter plans to use the net proceeds from the $1.1 billion offering to reduce its obligations under its existing credit facility and plans to extend the maturity of the remaining loans for four years.
"The preliminary 'B-' corporate credit rating reflects CityCenter's weak credit measures, the very slow ramp up experienced at the property since its opening in December 2009 and our belief that the company will be challenged to ramp up cash flow generation to a level sufficient to service the proposed capital structure," Standard & Poor's credit analyst Ben Bubeck said in a statement. "These risks are only modestly offset by liquidity enhancements to facilitate a prolonged ramp-up period ... and our view that the Las Vegas Strip should realize at least modest growth in gaming revenue over the next few years, as well as continued moderate growth in convention business."
Since its opening in December 2009, CityCenter has experienced a "very slow operational ramp up, largely due to weak economic conditions" that severely affected revenue for all Strip casinos, S&P said.
"Additionally, challenges associated with operating a new property, including heightened operating costs, access issues, and lower marketing spend than typically associated with the opening of a property of CityCenter's scale, also contributed to depressed operating performance," S&P said.
S&P noted that in the nine months ended Sept. 30, 2010, EBITDA at City Center was "just" $52.4 million (including $108 million in forfeited condominium deposits), which translated into an EBITDA margin in the low-single-digit percentage area.
EBITDA is a profitability measure meaning earnings before interest, taxes, depreciation and amortization.
Moody's, in its report, said it assigned a speculative-grade Caa2 Corporate Family Rating and Probability of Default Rating to CityCenter Holdings.
"The ratings reflect the significant challenges faced by the company to increase revenue and EBITDA sufficiently within the next 18 months to support interest expense and reduce leverage to a manageable level. These challenges include weak demand for gaming, excess room supply on the Las Vegas Strip and the need to build customer loyalty for CityCenter as a destination for luxury and high-end gaming customers and
large groups," Moody's said. "In this environment, CityCenter will need to take market
share from other well-established properties that have greater financial flexibility with which to compete. The ratings also reflect weak liquidity given the absence of a committed revolving credit facility, the risk that further disputes could arise between the project sponsors -- as occurred in early 2009 -- and CityCenter's reliance upon its sponsors for financial support should operations fail to ramp up as anticipated. The ability of the partners to provide such support is not certain given their own financial difficulties."
"Positive rating considerations include Moody's opinion that Las Vegas operating trends have reached a bottom and will begin to improve slowly over the next 12-24 months, the operational expertise of MGM Resorts and significant equity investment by the sponsors," Moody's said.
"CityCenter's ability to service its debt beginning in mid-2012 is dependent upon a material increase in occupancy, improvements in room rate and gaming revenue and obtaining operating efficiencies as the property ramps up in order to grow EBITDA to a level to support its annual interest expense requirement," Moody's said.
Moody's said the stable rating outlook reflects its view that operating conditions in Las Vegas will slowly begin to improve, enabling CityCenter to increase EBITDA to a level supporting its interest expense by the end of 2012.
MGM Resorts' stock was steady on the news today, closing at $16.33, down 2 cents. The stock jumped $1.13 on Friday on news of stronger convention bookings this year.
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