Century Casinos ratings downgraded by Moody’s due to high leverage

Investing.com -- Moody’s (NYSE:MCO) Ratings has lowered its ratings for Century Casinos (NASDAQ:CNTY), Inc., including its Corporate Family Rating (CFR) to Caa1 from B3. This downgrade also extends to the company’s Probability of Default Rating (PDR) which has been adjusted to Caa1-PD from B3-PD, and its Senior Secured Bank Credit Facilities ratings which have been changed to B1 and Caa1 from Ba3 and B3. Moody’s has kept the company’s Speculative Grade Liquidity (SGL) at SGL-3 and changed the outlook to stable from negative.

The downgrade is a reflection of the high leverage ratio of Century Casinos, which is expected to exceed 7.0x Debt/EBITDA for the next 12 to 18 months. This high leverage is due to a stagnant operating performance and significant lease obligations to VICI Properties (NYSE:VICI) L.P., specifically for four properties in Alberta, Canada. These properties were part of a sale leaseback transaction executed in September 2023. Despite the capital obtained being directed towards growth capital expenditures, Moody’s anticipates the high leverage to persist.

The Caa1 CFR rating assigned to Century Casinos is indicative of the company’s high leverage and relatively small revenue scale. As of September 30, 2024, Moody’s Debt/EBITDA for the company was 9.0x. The company, which has been growing through acquisitions and developments, generated approximately $582 million in revenue at the end of September 2024. However, the company’s iGaming and sports betting operations remain small. Additionally, like other US gaming companies, Century Casinos faces the challenge of changing consumer entertainment preferences that are moving away from traditional casino-style gaming.

Despite these challenges, Century Casinos has some positive credit aspects, such as product and geographic diversification resulting from acquisitions and developments, as well as the absence of near-term maturities.

As of September 30, 2024, Century Casinos had about $119 million in unrestricted cash and full availability on its $30 million revolver, which is not due until April 2027. The company’s senior secured first lien term loan is not due until April 2029, indicating adequate liquidity.

The stable outlook assigned by Moody’s is based on the expectation of modest improvement in Century Casinos’ revenues and EBITDA following the completion of recent construction projects. The outlook also reflects the anticipation that the company’s liquidity will remain adequate.

Century Casinos’ ratings could be upgraded if the company manages to maintain Debt/EBITDA below 7.0x, generate positive free cash flow, and comfortably meet its financial covenant requirements. On the other hand, the ratings could be downgraded if the company’s liquidity deteriorates, EBITDA declines due to volume pressures or higher operating costs, or if the probability of default increases or estimated recoveries decline.

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