Boyd Gaming Corporation -- Moody's upgrades Boyd's speculative grade liquidity rating to SGL-2

Announcement: Moody's upgrades Boyd's speculative grade liquidity rating to SGL-2

Global Credit Research - 11 Dec 2020

New York, December 11, 2020 -- Moody's Investors Service today upgraded Boyd Gaming Corporation's ("Boyd") Speculative Grade Liquidity rating to SGL-2 from SGL-4. The company's Corporate Family Rating ("CFR") of B2, Probability of Default Rating of B2-PD, existing senior secured revolver and term loans rated Ba3, and existing senior unsecured notes rated Caa1 are unchanged. The outlook remains negative.

The upgrade to Boyd's speculative-grade liquidity rating to SGL-2 from SGL-4 was driven by the company's recent maturity extension of its revolving credit facility and term loan A to September 2023 from 2021. The upgrade to the SGL additionally reflects that largely all the company's casinos have reopened and have demonstrated EBITDA margin improvement, while generating strong free cash flow of nearly $150 million for the recent quarter. As of September 30, 2020, the company had $506 million of cash, and an undrawn revolving credit facility with $933 million of availability. Effective October 8, 2020, the company increased its revolving credit facility capacity to $1,033.7 million from $945.5 million. Moody's estimates the company could maintain sufficient internal cash sources after maintenance capital expenditures to meet required annual amortization and interest requirements assuming a sizeable decline in annual EBITDA. Boyd is currently subject to a minimum liquidity requirement of $250 million, as typical financial maintenance covenants are waived until Q2 2021. Moody's believes the company will maintain compliance with the minimum liquidity covenant and the leverage and interest coverage financial covenants once they resume in Q2 2021.

The following ratings/assessments are affected by today's action:

Ratings Upgraded:

..Issuer: Boyd Gaming Corporation

.... Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-4

RATINGS RATIONALE

Boyd's B2 CFR reflects the meaningful earnings decline from efforts to contain the coronavirus and the potential for a slow or uneven recovery as properties reopen. Boyd's properties have largely reopened with its Las Vegas locals and Midwest and South regions performing better than Downtown Las Vegas given demand levels and expense reductions. The rating also reflects the company's significant size and geographic diversification. The company is the second-largest regional gaming operator in terms of net revenue and number of casino assets operated. Key credit concerns include Boyd's significant leverage prior to the coronavirus outbreak and longer-term social risk and fundamental challenges facing Boyd and other regional gaming companies related to consumer entertainment preferences and US population demographics that Moody's believes will move in a direction that does not favor traditional casino-style gaming.

The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of Boyd from the current weak US economic activity and a gradual recovery for the coming year. Although an economic recovery is underway, it is tenuous, and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The gaming sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in Boyd's credit profile, including its exposure to travel disruptions and discretionary consumer spending have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and Boyd remains vulnerable to the outbreak continuing to spread.

Governance risk is considered balanced given public ownership and the company's track record of managing dividends and share repurchases principally from cash flow. The company suspended its quarterly cash dividend to conserve liquidity due to the impact of coronavirus on the company's operations. From a leverage and financial policy perspective, with several significant acquisitions behind the company, Boyd had been able to reduce debt-to-EBITDA leverage to about 5x before the pandemic pushed leverage up over 7x as of September 2020.

The negative outlook considers that Boyd remains vulnerable to travel disruptions and unfavorable sudden shifts in discretionary consumer spending and the uncertainty regarding the consistency and pace at which consumer spending and level of gaming activity at the company's properties will recover.

Ratings could be downgraded if liquidity deteriorates or if Moody's anticipates Boyd's earnings declines to be deeper or more prolonged because of actions to contain the spread of the virus or reductions in discretionary consumer spending.

A ratings upgrade is unlikely given the uncertain operating environment. However, the ratings could be upgraded if facilities are able to remain open and earnings recover such that positive free cash flow and reinvestment flexibility is fully restored, and debt-to-EBITDA is sustained below 5.25x.

The principal methodology used in this rating was Gaming Methodology published in October 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1244702. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Boyd Gaming Corporation owns and operates 29 gaming properties in ten states: Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio, and Pennsylvania. Revenue for the last twelve-month period ended September 30, 2020 was approximately $2.4 billion.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Adam McLaren Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 John E. Puchalla, CFA Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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