Moody’s Investors Service on Monday downgraded Riviera Holdings Corp.’s debt ratings and said further downgrades are possible for the Las Vegas hotel-casino company.
Riviera is considered to be in better financial shape after its emergence from bankruptcy last year — a deal engineered by veteran hotelier Barry Sternlicht.
Moody’s, however, is worried about continued losses at the aging 2,075-room Riviera hotel-casino on the Las Vegas Strip as well as the company’s debt load of about $73 million.
It lost $15.9 million last year, up from a loss of $13 million in 2010.
Moody’s also expressed concern that Riviera won’t use all the cash generated by the $76 million sale of its casino in Black Hawk, Colo., to pay down debt. That sale is scheduled to close this quarter.
Moody’s on Monday downgraded Riviera’s Corporate Family Rating to Caa1 from B3 — moving the rating deeper into speculative, or junk, territory.
“The downgrade reflects the year-over-year approximate $2.5 million EBITDA decline at Riviera Las Vegas’ property between fiscal fourth quarter 2011 and the prior year, along with the fact that the property reported negative EBITDA of about $8 million for fiscal 2011,” Moody’s said in announcing the downgrade.
EBITDA is a key casino industry financial measure meaning earnings before interest, taxes, depreciation and amortization.
If the proceeds from the Colorado casino sale aren’t all used to repay debt, Moody’s said, “the ratings would likely be downgraded reflecting Moody’s view that operating results of the Riviera Las Vegas will not rebound quickly, thereby forcing the company to draw on cash reserves to support operations.”
“While the Las Vegas Strip’s recovery is gaining traction, primarily through improved hotel occupancy, the Riviera Las Vegas’ EBITDA has not yet benefited from these trends,” Moody’s said.
Riviera’s lack of diversification makes it more vulnerable to regional economic swings, market conditions and competitors’ promotional activities, Moody’s added.