KEY RATING DRIVERS
The affirmation of Agua Caliente's IDR at 'BB' reflects the tribe's strong balance sheet, the tribe's continued commitment to a sustainable tribal per capita distribution policy, stable operating profile and a level of diversification relative to other Native American gaming issuers.
Agua Caliente's credit metrics are solid. For the last 12-month (LTM) period ending
Agua's revenues have been steadily recovering since bottoming in 2011. The positive revenue trends have continued into 2014 despite the recent generally weak trends across U.S. regional gaming markets. Fitch expects Agua's operating performance to remain stable, supported by improving employment and real estate markets in its primary Inland Empire market. The employment levels in the Riverside-San Bernardino metro area in
The rating reflects Fitch's comfort with respect to the tribe's commitment towards prudent tribal financial policies. Previously, Fitch was concerned that the tribe was depleting its reserves, which were being used to supplement per capita payments when casino distributions declined during the downturn. Starting 2011, the tribe reduced per capita payments in an effort to stabilize the reserves and according to management has maintained or grown reserves since then. Fitch is unable to verify the tribal reserves since the tribe does not share its governmental financials and the management is somewhat opaque when discussing the tribe's financial health. Fitch views this lack of disclosure as a credit negative.
Debt Structure and Liquidity
All of Agua Caliente's debt is pari passu with respect to bondholders' security interest in the cash flows of the tribe's casino gaming operations. The 2003 bonds have the benefit of a fully funded trustee held debt service reserve fund. There are also reserve accounts established for the 2006 and 2007 notes but the tribe can access these funds between quarterly deficiency test dates.
There is a financial maintenance coverage covenant set at 2.0x of maximum annual debt service (MADS). A breach of the covenant would be an event of default. However, Fitch considers this threshold to be high relative to the agency's rated universe, so obtaining a waiver or an amendment in case of a breach would not be difficult, in Fitch's view.
There is also an additional debt test limiting debt issuance if pro forma MADS coverage is less than 2.25x or leverage exceeds 3.0x. There is a
The tribe is required to make mandatory sinking fund payments with respect to the debt outstanding, so there is low refinancing risk. Cash at the casinos just meets cage cash and day-to-day operating needs with the bulk of the tribe's cash kept at the governmental level. Fitch believes that the tribe's reserves remain sizable but is not able to verify. The tribe does not have access to external liquidity, such as a revolving credit facility.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
--EBITDA/debt service exceeding 4.0x;
--Debt/EBITDA levels falling below 1.5x;
--Increased disclosure of the tribe's financials;
--Continued improvement in the operating environment.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
--EBITDA/debt service falling below the 2.5x;
--Debt/EBITDA levels moving towards 3.0x;
--Undertaking of a large scale project or sharp operating declines leading to sizable deterioration in the credit metrics;
--Tribe straying away from its more prudent fiscal practices (i.e. depleting reserves).
Fitch affirms the following ratings:
--IDR at 'BB';
--Senior secured notes due 2015, 2016 and 2021 at 'BB+';
--Revenue bonds due 2018 at 'BB+'.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage' (
--'2014 Outlook: U.S. Gaming (Deleveraging Potential)' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
2014 Outlook: U.S. Gaming (Deleveraging Potential)
Alex Bumazhny, CFA, +1-212-908-9179
Source: Fitch Ratings
Most Popular Stories
- Rackspace Ends Talks About Possible Acquisition
- Mercedes Rolls Out S550 Plug-in Hybrid
- FedEx Adding 50,000 Holiday Jobs
- Plus-Size iPhones Live Up to The Hype
- Toxic Algae Threatens Florida Fishing, Tourism
- Cool Features on Today's New iOS 8
- Missouri GM Plant Adding 750 jobs
- Family Dollar Spurning Bid From Dollar General
- Kohl's Hiring 67,000 for the Holidays
- Poverty Rate Drops for First Time Since 2006