Moody’s Investors Service on Thursday downgraded key Riviera Holdings Corp. debt ratings — the second such downgrade since April.
Moody’s cited “heightened concern” that the company, owner of the 2,075-room Riviera hotel-casino on the Las Vegas Strip, has been producing negative EBITDA, or earnings before interest, taxes, depreciation and amortization.
As a key measure of a hotel-casino company’s financial performance, EBITDA at Riviera Holdings came in at a negative $1.4 million during the first quarter, Moody’s said. Second quarter results have not yet been announced.
“Moody’s expects this property will continue to be challenged given its location at the north end of the Las Vegas Strip,” the debt-rating company said in a report Thursday. “Casinos located on the northern end of the Las Vegas Strip, like Riviera Las Vegas, have struggled due to low foot traffic. And while the Las Vegas Strip’s recovery is gaining traction, primarily through improved hotel occupancy, Riviera Las Vegas’ EBITDA has not yet benefited from these trends.”
Riviera has been touting plans for $35 million or more in renovations and has $90 million in cash, more than its $73.2 million in outstanding debt, thanks to the sale of a Colorado casino.
But Moody’s said it’s concerned that “the company will have to rely on this cash to cover its debt service and maintenance capital expenditures given that its casino asset is not profitable on an EBITDA basis.”
Moody’s on Thursday lowered the company’s Corporate Family and Probability of Default ratings to Caa2 from Caa1, deeper into speculative or junk territory, and assigned a negative rating outlook to the debt.
“Even though Moody’s believes Riviera will use a portion of the proceeds from the sale of the Riviera Black Hawk (in Colorado) to pay down debt, the company will still be reliant upon a turnaround at the Riviera Las Vegas for improvement in earnings and future debt reduction,” Moody’s added.