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Fitch Affirms Santa Ana Pueblo's Issuer Rating at 'BB'; Outlook Stable
NEW YORK-(Business Wire)-October 3, 2008 - Fitch Ratings has affirmed Santa Ana Pueblo's (Santa Ana or the Pueblo) credit ratings as follows:
—Issuer rating at 'BB';
—$45 million enterprise revenue bonds, series 2006, at 'BB+'.
The Rating Outlook is Stable.
Santa Ana's 'BB' issuer rating is supported by its relatively diverse operating profile within the Fitch-rated Native American universe. Although the primary economic driver of the Pueblo, and therefore the primary credit driver, is its casino gaming operation, diversification is provided by two other enterprises owned by the Pueblo, including a Hyatt resort property and a golf course operation. The Albuquerque gaming market is highly competitive, with five other Native American gaming entities operating seven properties in the area. However, the Santa Ana Star casino occupies an attractive niche position, serving the Rio Rancho locals market. Rio Rancho is a northern suburb of Albuquerque that has enjoyed strong growth in recent years due to the built out nature of the city.
The Stable Rating Outlook reflects Fitch's expectation that the casino will continue stable operations despite recent changes in the senior management team and additional competitive pressure in the Albuquerque market. Although the Santa Ana Star has a proven strong position, the recent opening of casino hotel properties at Isleta and Route 66 could pressure its market share. In addition, there is the potential that the newly opened Buffalo Thunder casino and hotel property, which is located north of Santa Fe, will have a negative impact on the operations on the Santa Ana Star casino and Hyatt Tamaya hotel property.
Credit metrics, including leverage and debt service coverage ratios, are strong relative to other credits in the 'BB' rating category. However, the low level of financial risk is offset by business risk inherit in the somewhat limited operating profile of the entity. For the fiscal year ended Sept. 30, 2007, the casino contributed 83.3% of the combined entity's EBITDA, with the Hyatt resort and golf operation contributed 14.4% and 2.7%, respectively. While the hotel and golf operation provide some diversification to the operation's cash flow, it is anticipated that the casino will continue to be the primary revenue generator going forward.
For the latest twelve months (LTM) ended June 30, 2008, the Santa Ana Star casino captured 15.7% of the Albuquerque market net slot win, up from 14.7% for the prior year period. Compared to the other five Native American gaming operators in the region, Santa Ana has historically ranked fourth in market share behind Sandia, Isleta and Laguna Pueblos. EBITDA for the combined enterprises for the LTM ended June 30, 2008 rose 4.1% compared to the prior year period. Operating margins, while remaining healthy, compressed from 30.6% to 27.6%, primarily due to increased labor, promotional and marketing costs at the casino operation. LTM leverage and debt service coverage ratios (including interest expense and required sinking fund deposits of principal on the senior lien enterprise bonds and a subordinate bank loan) were 1.25 times (x) and 5.4x, respectively.
The 2006 enterprise revenue bonds are term bonds maturing in 2015. The bonds are subject to mandatory monthly sinking fund payments of principal in an amount sufficient to fully amortize by maturity, resulting in a level debt service schedule through maturity. The subordinate bank loan is outstanding in the amount of $15 million and matures in 2024.
A 'BB+' transaction rating is assigned to debt secured by a lien on the combined gaming, hotel and golf enterprise cash flows. The transactions are rated one notch above the issuer rating due to credit enhancement provided by security covenants included in the legal documents associated with the transactions.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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