Station Casinos LLC, a consolidated subsidiary of Red Rock Resorts, Inc., on Wednesday said it intends to offer, subject to market and other conditions, $500m aggregate principal amount of senior notes due 2031 in a private placement.
Station Casinos said it intends to use the net proceeds of the offering, together with borrowings under the company’s revolving credit facility for four purposes. First, to make a distribution of approximately $344m to holders of the company’s outstanding limited liability company interests, including the company’s parent, Red Rock Resorts, Inc. (RRR).
Second, to pay the purchase price for shares of Class A Common Stock tendered in RRR’s offer to purchase up to $350m of its Class A Common Stock, also announced Wednesday.
Third, to pay fees and costs associated with the two listed transactions, and fourth, for general corporate purposes.
According to a statement from Station Casinos, the senior notes will be offered and sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended, and to persons outside the United States in accordance with Regulation S under the Securities Act.
The notes will not be registered under the Securities Act and, unless so registered, may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.
Moody’s upgrade
As Station issued its senior notes offer, Moody’s Investors Service said it upgraded Station’s Corporate Family Rating (CFR) to B1 from B2 and Probability of Default Rating to B1-PD from B2-PD.
According to a statement from Moody’s, Station’s existing senior secured revolver and term loans were upgraded to Ba3 from B1, and the company’s existing senior unsecured notes were upgraded to B3 from Caa1.
Moody’s assigned a B3 rating to Station’s proposed $500m senior unsecured notes.
Station’s Speculative Grade Liquidity rating remains SGL-2 and the rating outlook is stable, Moody’s added.
“The upgrade of Station’s CFR to B1 considers the improvement in operating performance since the company’s casinos have reopened, including robust free cash flow generation that exceeded $500m over the last 12 months and a reduction in debt-to-EBITDA to below 4.0x as of September 2021,” Moody’s said in a statement.
Moody’s further noted Station has been able to improve its EBITDA margins “significantly” and increase absolute EBITDA levels back above pre-pandemic levels, with savings of $200m as compared to pre-pandemic levels, including in areas such as labor and marketing spend.
Moody’s said it believes Station has the capacity to withstand an increase in debt from the proposed notes offering, and also has cushion to withstand a meaningful partial reversal of the margin gains, should such pressure arise over time, and still maintain debt-to-EBITDA leverage below 5.25x, supporting the upgrade to B1.
Because the Palms casino (pictured) was not reopened since closing in March 2020 due to the pandemic, the above credit metrics are not affected by the pending sale of the facility, Moody’s said.
Moody’s projects Station will have “strong” operating cash flow of more than $500m in 2022 along with $650m of divestiture proceeds from the sale of the Palms casino, as well as additional proceeds from the sale of land, which it said will provide sufficient cash to fund the estimated $750m of total costs (hard and soft construction costs, pre-opening expenses, etc.) for the proposed Durango Station development.
Station’s free cash flow will be “weaker” in 2022 and 2023, Moody’s projects, because capital spending will increase to fund the construction. However, Moody’s said Durango Station will thereafter add to the earnings base of the company. Construction on the new property in expected to start in the first quarter of 2022 and take approximately 18 to 24 months to complete, Moody’s noted.
