CIBC World Markets this week is launching syndication of a $500 million credit for Isle Of Capri Casinos into a market warming to the gaming sector after it sustained the worst that could be thrown at it. "There is positive demand for gaming paper right now, with the overall economy improving and the regional (non-Vegas) companies not adversely affected by Sept. 11," stated Rex Yeisley, senior v.p. and cfo of Isle of Capri. Boyd Gaming is also set to refinance this summer after a $200 million bond offering last week and other bank deals for gaming companies are said to be in the works.
An inviting bond market is fueling loan market demand for gaming company paper. "A slew of gaming companies are tapping the bond market to pay down bank debt such as Penn National Gaming, Boyd, Isle, and Park Place," said a banker. This significant repayment of bank debt comes as bank-debt investors increasingly want to stay weighted in gaming, leading to demand for the paper, he noted. Pricing in the secondary has rallied since Sept. 11, he added. Explaining the popularity, the banker said after the terrorist attacks certain sectors such as gaming and lodging took a very immediate downturn. The benefit from the lenders' perspective is that the gaming companies sustained the worst that could happen and came through the other side. "It has been a good experience for the bank market, which likes to run the hair-raising, worst-case scenario tests," he added.
Craig Parmalee, an analyst at Standard & Poor's covering the gaming industry, agrees things are looking up. "Certainly since 9/11, we have seen a worst-case scenario and a quick bounceback, which speaks well for the resilience of the sector." However, the improvements are not across the board with Las Vegas and Paradise Islands in the Bahamas still adversely affected, he noted. "Boyd and Isle have riverboat portfolios," Parmalee said, differentiating between the drive-to locations and fly-to destinations.
A banker familiar with the Isle deal, said pricing on the $250 million term loan "B" is LIBOR plus 23/ 4%, down from the current LIBOR plus 31/ 4%. This can be attributed to good operating performance, but also the addition of subordinated debt following the $200 million sub note offering. Total leverage is the same at 4.5 times, but senior leverage has gone from the high 2's to 1.9 times. The $250 million revolver is priced on a grid at LIBOR plus 11/ 2% to 23/ 4%. On a relative-value basis the bank debt looks highly attractive to the subordinated debt, which priced at 9%, he added. Rob Stillwell, spokesman for Boyd, confirmed the gaming company will refinance in the summer, but declined further comment. Officials at CIBC declined comment.