S&P: Isle Of Capri Casinos Inc. Outlook Revised To Stable On Agreement To Be Acquired; Ratings Affirmed
"The outlook revision to stable from positive reflects our expectation that Isle's leverage will no longer improve below the mid-4x area, the level at which we would consider higher ratings," said S&P Global Ratings credit analyst Ariel Silverberg. "This stems from our belief that if the acquisition does close, on the terms currently laid out by Eldorado, the adjusted leverage of the combined entity would be in the mid-5x area, or modestly lower, through 2017," she added.
We also expect that if the acquisition of Isle by Eldorado Resorts Inc. does not close, Isle may seek to provide a return to its shareholders that may result in an increase in adjusted debt to EBITDA above our current mid-4x or below forecast. Notwithstanding any potential leveraging event to provide a return to shareholders, however, we expect Isle to continue to generate good levels of discretionary cash flow through modest EBITDA growth, and from net proceeds of $124 million following the completion of the sale of its Lake Charles, La. property.
The stable outlook reflects our belief that adjusted leverage would likely remain between the mid-4x and mid-5x area through 2017 regardless of whether the acquisition closes. In a scenario where the acquisition does close, on the terms currently laid out by Eldorado, we expect leverage of the combined company to be in the mid-5x area, or modestly lower, through 2017. If, however, Eldorado's acquisition of Isle does not close, Isle may seek to provide a return to its shareholders that may result in an increase in adjusted debt to EBITDA above our current forecast for leverage in the mid-4x area or below. Nevertheless, we currently do not expect any potential action to provide a return to shareholders would result in leverage above the mid-5x area, the level at which we would consider lower ratings for Isle.
We could lower ratings if we expect Isle's adjusted leverage will increase above the mid-5x area over the long run. This would likely occur if Isle pursues a more aggressive posture with respect to funding returns to shareholders than we are currently incorporating into our rating, or, if Isle pursues a leveraging acquisition that we do not believe enhances its business risk profile.
We could revise the outlook to positive if we believed Isle would maintain adjusted leverage below the mid-4x area over the long run, incorporating adverse weather events like flooding or regional economic weakness, and we believed the company's financial policy will be aligned with adjusted debt to EBITDA below this level.