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Fitch outlook on Boyd Gaming debt revised to negative

Fitch Ratings on Wednesday revised its rating outlook on the debt of Boyd Gaming Corp. of Las Vegas from stable to negative, citing factors including difficult operating conditions in Las Vegas.

Despite the outlook change, Fitch affirmed its “B” issuer default rating on Boyd’s debt.

Fitch’s announcement came one day after Boyd posted a lower third-quarter profit of $3.1 million vs. $5.6 million in the year-ago quarter. Net revenue of $590.2 million was off from $594.4 million.

Boyd executives on Tuesday said cash flow had improved dramatically in Las Vegas, where the company has three downtown properties plus four locals properties, such as the Orleans and Sam’s Town.

But in its ratings report Wednesday, Fitch noted continue difficulties in the Las Vegas economy, which leads the nation in foreclosures and where unemployment remains elevated at 13.6 percent. On top of that, Boyd faces stiff competition locally from Station Casinos LLC, Fitch noted.

“Fitch maintains a cautious outlook on the pace of recovery in the Las Vegas locals market, given the continued micro-economic challenges in the region as well as heightened risk of ramp-up in the promotional environment since Station Casinos emerged from bankruptcy in June 2011,” Fitch said in its report.

The Las Vegas locals market accounts for 43 percent of Boyd’s EBITDA, or earnings before interest, taxes, depreciation and amortization, Fitch said.

In its quarterly earnings report Tuesday, Boyd said Las Vegas locals net revenue was flat at about $146 million, though EBITDA increased nearly 18 percent — an indication the company had reduced expenses at the locals properties.

Another potential problem, not just for Boyd, is “Fitch’s more conservative view of the pace of the broader U.S. economic recovery,” the debt rater said.

Fitch, in revising its outlook on Boyd, also cited more competition for its casinos in the Midwest and the South.

At the corporate level, Fitch cited the potential for reduced financial flexibility as the company deals with a near-term liquidity gap and debt maturing in 2014 and 2015.

“The ‘B’ Issuer Default Rating continues to be supported by Boyd’s solid FCF (free cash flow) profile, sizable and somewhat diversified portfolio of assets, successful operating history and management’s solid track record,” Fitch said in its ratings report.

The Fitch report on Boyd, which carries about $2.8 billion in debt, follows a report last month by Moody’s Investors Service in which it affirmed its stable rating outlook on Boyd.

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