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Howard Stutz

Moody's: Gaming company high yield bonds offer investors increased protection

11 October 2012

LAS VEGAS -- High-yield bonds issued by gaming companies, including the CityCenter developers, offer more investor protection than those of nonfinancial companies, an analyst for Moody's Investor Service said Tuesday.

In a report issued by the debt advisory service, Moody's Senior Vice President Keith Foley said the covenants of the gaming sector bonds offer more safeguards for the investment than in any sector covered in the company's high-yield covenant database.

"The covenants of high-yield gaming company bonds are strongest in terms of minimizing cash leakage through restricted payments, preventing structural and lien subordination and limiting the amount of debt an issuer can take on," Foley said.

Moody's analyzed the covenant packages of 17 high-yield bonds issued by 15 U.S. gaming companies between January 2011 and July 2012. The bonds are included in Moody's High-Yield Covenant Database, which contains more than 1,000 global bond issues dating back to 2010. The strength of gaming covenants reflects the sector's very high leverage and low credit ratings, according the Moody's report.

"As a result, the gaming bond covenants have to limit the companies' ability to take on additional debt - both secured and unsecured - or make restricted payments, among other actions that could be detrimental to bondholders," Foley says.

Of the 17 covenant packages analyzed by Moody's, the strongest were offered by CityCenter Holdings LLC, Mohegan Tribal Gaming Authority and Downstream Development.

CityCenter is 50-50 owned by MGM Resorts International and Dubai World.

Bonds with weak investor protections included those of regional casino operators Ameristar Casinos and Pinnacle Entertainment.