CHICAGO, May 25 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has
downgraded the debt ratings of Mandalay Resort Group (NYSE: MBG). Ratings
lowered include MBG's senior notes and debentures to 'BB+' (Double-B-Plus)
from 'BBB-' (Triple-B-Minus) and senior subordinated notes to 'BB-'
(Double-B-Minus) from 'BB' (Double-B). The commercial paper rating of 'D-3'
(D-Three) has been withdrawn as the company's program is dormant. The Rating
Outlook is Stable. Approximately $1.1 billion of debt securities are affected
by this action.
The rating action follows the company's aggressive share repurchase
activity during its recently concluded first quarter and DCR's expectation
that continued share repurchases are likely. The Stable Outlook recognizes
the current healthy fundamentals of MBG's business as well as its modest
capital spending plans during the next few years.
MBG repurchased 11.9 million shares at a cost of $190 million, in excess
of free cash flow, during the quarter ended April 30, 2000, which resulted in
an increase in debt levels to approximately $3 billion, including operating
leases. DCR had previously expected that MBG's debt levels had peaked at
yearend and that free cash flow would be utilized primarily for debt reduction
during the current fiscal year in order to maintain an investment-grade senior
debt rating.
In the recent quarter, MBG reported record operating cash flow of
$192 million compared with $148 million in the first quarter last year and
$111 million in the previous quarter. All properties reported year-over-year
improvement with MBG benefiting in particular from the healthy conditions on
the Las Vegas strip. EBITDA rose 23 percent at Luxor, 22 percent at
Excalibur, 13 percent at Monte Carlo and 7 percent at Circus Circus. Mandalay
Bay reported a 35 percent EBITDAR improvement to $30.5 million compared with
$22.6 million in its initial 59 days in the prior year. Solid EBITDA gains
were also experienced in Elgin (60 percent), Tunica (14 percent), Reno
(46 percent) and Laughlin (9 percent). In Detroit, MBG's 53.5 percent owned
casino reported $20 million of EBITDA in its first full quarter as the
property begins to ramp up.
Management is highly focused on shareholder value creation, which it
believes is best served through shrinking its balance sheet by virtue of share
repurchases and debt reduction. Following the recent share repurchase
activity, the board authorized an additional share repurchase program
representing 15 percent of current shares outstanding. MBG's financial
policies are to maintain EBITDA/interest between 3-4 times, but also to ensure
that its competitors do not have a significant cost of capital advantage. As
a result of downgrades that have occurred throughout the sector, MBG is
presently comfortable with a more aggressive financial policy, particularly in
light of its current healthy operating fundamentals.
SOURCE Duff & Phelps Credit Rating Co.
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Related links:
http://www.dcrco.com
CONTACT:
Steven P. Altman, CPA, 312-368-2090, or Eric
Stephenson, 212-908-0859, both of Duff & Phelps Credit Rating Co.
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