Red Rock Resorts
New Coverage/Issuer Covenant Card: Red Rock Resorts Inc.
Wed 05/27/2020 17:14 PM
Relevant Items:
Debt Documents
Covenants Tear Sheet
Red Rock Resorts Inc. owns a direct 100% voting equity interest and an indirect 60.1% nonvoting equity interest in Station Casinos LLC. Station Casinos is a gaming, development and management company that owns and operates ten major gaming and entertainment facilities and ten smaller casinos, offering approximately 20,400 slot machines, 375 table games and 5,000 hotel rooms in the Las Vegas market. In addition, Station Casinos also manages Graton Resort & Casino in Northern California on behalf of a Native American tribe.
Station Casinos has a secured $1.03 billion revolver, a $189 million term loan A and a $1.52 billion term loan B, each executed under the same credit agreement, and $1.3 billion of senior unsecured notes, including $750 million of notes due 2028 that were issued in February. The proceeds of the 2028 notes were used to repay $484 million of credit facilities debt and the remainder slated for general corporate purposes.
The company’s capital structure, leverage metrics and liquidity as of March 31 are as follows:
The abbreviated organizational chart provided in the February offering memorandum is as follows:
On Feb. 7, in conjunction with the issuance of the 2028 notes, Station Casinos amended its revolver and term loan agreement to, among other things, amend the agreement’s leverage covenant and increase commitments from $916 million to $1.03 billion. A month later, on March 12, the company drew down nearly all remaining availability under the revolver, $997.5 million. An 8-K filed later in the month stated that the company drew down the revolver “to increase its cash position and preserve financial flexibility in light of the uncertainty in the global markets.”
On March 17, Station Casinos announced it was temporarily closing its Las Vegas properties as a result of the governor’s order relating to the Covid-19 outbreak, and, on May 4, the company announced 39% of its full-time workforce would be terminated on May 16, with benefits to terminate at the end of September.
In its 10-Q for the first quarter of 2020, the company reported that the closures of its properties “have had and will continue to have an adverse effect on the Company’s business and results of operations” and that it continues to have “fixed and variable expenses that will impact our cash position and profitability.” The company also announced it intends to begin a phased reopening of its casinos when permitted by government authorities, but management stated on the May 9 earnings call that it expected the company to be affected by continued state-mandated occupancy and social-distancing restrictions.
The amended revolver and term loan agreement contains a 3.00x interest coverage covenant and a 6.50x net first lien leverage covenant, each tested quarterly and for the benefit of revolver and term loan A lenders only. The net first lien leverage covenant permits $400 million of cash netting, and the leverage test steps down to 6.25x for the period ending March 31, 2022, thereafter declining by 0.25x every two quarters until it reaches 5.25x for the periods ending on and after Dec. 31, 2023. Before the amendment, the 6.50x leverage test was set to step down at the period ending March 2020, not March 2022.
Unlike many other recent amendments to credit agreement in the market, the February amendment did not amend the agreement’s EBITDA calculation.
The company reported net first lien leverage under the covenant of 4.16x as of March 31, which implies covenant EBITDA under the credit agreement of approximately $555 million. Those figures imply additional debt capacity under the 6.50x test of $1.3 billion and an EBITDA cushion of $200 million.
Revolver availability was approximately $30 million as of March 31, and as of March 31 the company could draw down that remaining de minimis amount of availability and remain in compliance with the financial covenants.
The credit agreement’s restrictive covenants generally contain flexibility for the company to incur additional debt or transfer assets to nonguarantors or unrestricted subsidiaries. As of March 31, the agreement’s debt and lien covenants permit the company to incur $500 million of additional first lien debt, $50 million of junior lien debt and unsecured debt in compliance with a 2.5x interest coverage test, which had about 3.86x turns of headroom as of March 31. Nonguarantor subsidiaries can also incur about $75 million of structurally senior debt (with some overlap in capacity amounts).
First lien debt capacity is probably unlikely to be used as that would affect the $200 million EBITDA cushion under the leverage covenant, as that cushion is likely to decrease as the year progresses and EBITDA attributable to non-coronavirus financial quarters roll off.
As to the potential for value leakage, the credit agreement contains capacity for about $75 million of dividends and $425 million of asset transfers. The company cannot use that asset transfer capacity to designate NP IP Holdings LLC (the "IP Holdco") or certain other specified “Principal Subsidiaries” as unrestricted or otherwise release those entities' guarantees of the loans.
Additionally, the credit agreement’s prepayment covenant prohibits open market purchases of the companies existing unsecured notes unless the company can access a builder basket that is subject to a 5.00x total leverage ratio test or a ratio prepayment basket that is subject to a 4.00x total leverage ratio test. Total leverage under the agreement was approximately 7.22x as of March 31.
The negative covenants of the two series of existing unsecured notes, including the notes issued in February, are less restrictive than the negative covenants of the credit agreement.
--Jeff Brenner
Debt Documents
Covenants Tear Sheet
Read more about the Red Rock Resorts Inc. covenant card as well as their covenant cushion calculations analyzed by our Covenants by Reorg team and request a trial to access the debt documents and covenants tear sheet.
Red Rock Resorts Inc. owns a direct 100% voting equity interest and an indirect 60.1% nonvoting equity interest in Station Casinos LLC. Station Casinos is a gaming, development and management company that owns and operates ten major gaming and entertainment facilities and ten smaller casinos, offering approximately 20,400 slot machines, 375 table games and 5,000 hotel rooms in the Las Vegas market. In addition, Station Casinos also manages Graton Resort & Casino in Northern California on behalf of a Native American tribe.
Station Casinos has a secured $1.03 billion revolver, a $189 million term loan A and a $1.52 billion term loan B, each executed under the same credit agreement, and $1.3 billion of senior unsecured notes, including $750 million of notes due 2028 that were issued in February. The proceeds of the 2028 notes were used to repay $484 million of credit facilities debt and the remainder slated for general corporate purposes.
The company’s capital structure, leverage metrics and liquidity as of March 31 are as follows:
The abbreviated organizational chart provided in the February offering memorandum is as follows:
Covid-19 Impact
On Feb. 7, in conjunction with the issuance of the 2028 notes, Station Casinos amended its revolver and term loan agreement to, among other things, amend the agreement’s leverage covenant and increase commitments from $916 million to $1.03 billion. A month later, on March 12, the company drew down nearly all remaining availability under the revolver, $997.5 million. An 8-K filed later in the month stated that the company drew down the revolver “to increase its cash position and preserve financial flexibility in light of the uncertainty in the global markets.”
On March 17, Station Casinos announced it was temporarily closing its Las Vegas properties as a result of the governor’s order relating to the Covid-19 outbreak, and, on May 4, the company announced 39% of its full-time workforce would be terminated on May 16, with benefits to terminate at the end of September.
In its 10-Q for the first quarter of 2020, the company reported that the closures of its properties “have had and will continue to have an adverse effect on the Company’s business and results of operations” and that it continues to have “fixed and variable expenses that will impact our cash position and profitability.” The company also announced it intends to begin a phased reopening of its casinos when permitted by government authorities, but management stated on the May 9 earnings call that it expected the company to be affected by continued state-mandated occupancy and social-distancing restrictions.
Covenant Conclusions (as of March 31)
The amended revolver and term loan agreement contains a 3.00x interest coverage covenant and a 6.50x net first lien leverage covenant, each tested quarterly and for the benefit of revolver and term loan A lenders only. The net first lien leverage covenant permits $400 million of cash netting, and the leverage test steps down to 6.25x for the period ending March 31, 2022, thereafter declining by 0.25x every two quarters until it reaches 5.25x for the periods ending on and after Dec. 31, 2023. Before the amendment, the 6.50x leverage test was set to step down at the period ending March 2020, not March 2022.
Unlike many other recent amendments to credit agreement in the market, the February amendment did not amend the agreement’s EBITDA calculation.
The company reported net first lien leverage under the covenant of 4.16x as of March 31, which implies covenant EBITDA under the credit agreement of approximately $555 million. Those figures imply additional debt capacity under the 6.50x test of $1.3 billion and an EBITDA cushion of $200 million.
Revolver availability was approximately $30 million as of March 31, and as of March 31 the company could draw down that remaining de minimis amount of availability and remain in compliance with the financial covenants.
The credit agreement’s restrictive covenants generally contain flexibility for the company to incur additional debt or transfer assets to nonguarantors or unrestricted subsidiaries. As of March 31, the agreement’s debt and lien covenants permit the company to incur $500 million of additional first lien debt, $50 million of junior lien debt and unsecured debt in compliance with a 2.5x interest coverage test, which had about 3.86x turns of headroom as of March 31. Nonguarantor subsidiaries can also incur about $75 million of structurally senior debt (with some overlap in capacity amounts).
First lien debt capacity is probably unlikely to be used as that would affect the $200 million EBITDA cushion under the leverage covenant, as that cushion is likely to decrease as the year progresses and EBITDA attributable to non-coronavirus financial quarters roll off.
As to the potential for value leakage, the credit agreement contains capacity for about $75 million of dividends and $425 million of asset transfers. The company cannot use that asset transfer capacity to designate NP IP Holdings LLC (the "IP Holdco") or certain other specified “Principal Subsidiaries” as unrestricted or otherwise release those entities' guarantees of the loans.
Additionally, the credit agreement’s prepayment covenant prohibits open market purchases of the companies existing unsecured notes unless the company can access a builder basket that is subject to a 5.00x total leverage ratio test or a ratio prepayment basket that is subject to a 4.00x total leverage ratio test. Total leverage under the agreement was approximately 7.22x as of March 31.
The negative covenants of the two series of existing unsecured notes, including the notes issued in February, are less restrictive than the negative covenants of the credit agreement.
--Jeff Brenner
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