Moody’s cites ‘depressed’ market in lowering rating for Stratosphere owner

The Stratosphere is shown Thursday, Dec. 9, 2010.

With the Southern Nevada casino market still struggling with extra capacity and the economic downturn, Moody's Investors Service today lowered one of its ratings for the owner of the Stratosphere resort in Las Vegas.

Moody’s changed its Speculative Grade Liquidity rating for American Casino & Entertainment Properties LLC to SGL-3 from SGL-2.

The company's B3 Corporate Family Rating, B3 Probability of Default Rating and B3 senior secured note ratings were affirmed. The outlook remains negative, Moody’s said.

In lowering the liquidity rating, Moody’s said this reflects a reduction in American Casino’s cash balance and the company's lack of a revolving credit facility that could provide liquidity if needed.

The lower cash balance is due largely to the company repurchasing about $20 million of its outstanding notes earlier this year.

The B3 corporate rating reflects factors including the company's small size and leveraged balance sheet, Moody’s said.

"It also recognizes the company's revenue concentration in the depressed gaming markets in and around Las Vegas," Moody’s said.

"The negative rating outlook reflects our view that operating results will remain weak as the operating environment in the Las Vegas gaming market will remain challenging at best and vulnerable to any weakening again of the economy," Moody’s said.

Despite today’s negative commentary, Moody’s said American Casino has an adequate liquidity profile and should generate enough cash to support interest costs and maintenance capital spending.

American Casino said in its latest financial report it was holding cash and cash equivalents totaling about $69 million as of June 30, down from $85 million at the beginning of the year.

The company, which is carrying some $340 million in debt, owns the two Arizona Charlie’s locals properties in Las Vegas besides the 2,427-room Stratosphere.

In Laughlin, one of the hardest-hit markets in Nevada during the recession, it owns the Aquarius resort.

The company last month said its financial performance improved in the second quarter vs. 2010’s second quarter as visitation to Las Vegas improved from 2010’s level.

The company lost $2.8 million compared to a loss of $7.7 million in the second quarter of 2010.

Net revenue of $87.5 million was up from $86.6 million in the year-ago quarter.

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