MTR credit rating drops
By CASEY JUNKINS, For The Weirton Daily Times
POSTED: August 16, 2008
CHESTER - MTR Gaming Group Inc., the parent company of Mountaineer Casino Racetrack and Resort, must increase earnings by 60 percent to avoid violating the financial covenants of its credit agreement, Standard and Poor's Rating Services announced Friday.
Standard and Poor's also lowered MTR's corporate credit rating from a "B+" to a "B-," which recognizes Standard and Poor's lack of confidence in MTR.
"The ratings downgrade reflects our concern that the company will violate the financial covenants established in its credit agreement in the near term, despite having previously amended its covenants in March 2008," said Standard and Poor's credit analyst Mike Listner.
Listner said MTR's earnings before interest, taxes, depreciation and amortization needs to grow about 60 percent on a year-over-year basis.
"They (MTR) must either reduce debt or increase profitability. If they do not, they will be in violation of the financial covenants of their credit agreement," he said.
Listner was uncertain which banks had agreements with MTR, but said it was likely "several."
He was also unsure of what the consequences would be for MTR in the event the company would violate its credit agreement.
As for the letter grades, Listner said they could be thought of as credit scores for individuals. "If you have a lower grade or score, you will have
higher interest rates," he said.
In addition to the Chester track, MTR also owns Presque Isle Downs in Erie, Pa.; Scioto Downs in Columbus, Ohio; 90 percent of Jackson Harness Raceway in Jackson, Mich.; and 50 percent of Running Aces Harness Park in Columbus,
Minn.
According to the West Virginia Lottery Commission, Mountaineer's highest-earning year in terms of slot machine revenue was Fiscal 2004, when the track earned $259.2 million. The track earned $254.8 million in Fiscal 2005, $252.3 million in Fiscal 2006, $248.6 million in Fiscal 2007 and $215.5 million in Fiscal 2008.
In anticipating a loss of slot machine revenue when Pennsylvania plugged in its machines, officials with Mountaineer and Wheeling Island Hotel-Casino-Racetrack last year convinced the West Virginia Legislature to allow table gambling at the tracks, following passage of a local referendum
on the issue.
Between the start of table games on Dec. 20 and July 19, Mountaineer earned about $157.7 million in both slots and table games, about $13 million more than the same time period one year earlier when the track had only slot machines.
But counting only slot machine revenue from Dec. 20 to July 19, Mountaineer took in $129.8 million. This is about 9 percent less than the $144.6 million the track gained over the same period a year earlier.
As for table gambling, Mountaineer claimed nearly $27.9 million over the period.
Listner said table gambling at Mountaineer will probably not allow the track to overcome a slowing economy and revenue losses to the Meadows Racetrack and Casino in Meadowlands, Pa. This means MTR will be relying on the growth of Presque Isle Downs to avoid the covenant violation.
According to the Pennsylvania Gaming Control Board, Presque Isle Downs has earned $240.3 million in slot machine revenue since the casino opened in February 2007.
In observing West Virginia's success with table gambling, Pennsylvania legislators are now sharing their views on House Bill 2121, which would permit table gambling at Pennsylvania's slot machine facilities, such as Presque Isle Downs and The Meadows.
In addition to Presque Isle Downs and The Meadows, other Keystone State casinos that may eventually offer table gambling include Mohegan Sun at Pocono Downs in Wilkes-Barre; Philadelphia Park in Bensalem; Harrah's Chester Downs in Chester, Pa.; Mount Airy Casino Resort in Mount Pocono; and
Hollywood Casino at Penn Nation Race Course in Grantville.
There's also the Majestic Star Casino proposed to open on Pittsburgh's North Shore in 2009. Even without table gambling, the Pittsburgh venue likely will hurt Mountaineer's revenue even further.
Despite Standard and Poor's analysis, MTR spokeswoman Tamara Pettit is optimistic about the future of MTR and Mountaineer.
"We understand the tightness of the credit market, but we believe our prospects are good," she said.
