NEW YORK, March 5 (Reuters) - Moody’s Investors Service on Wednesday cut its rating on Tropicana Entertainment by two notches, saying the casino company’s risk of default has increased after an adverse court ruling.
A Delaware court on Friday ruled that Tropicana is in technical default on its bond debt because its Atlantic City assets were transferred to a trustee when the company lost its New Jersey state gaming license in December. A technical default gives bondholders the right to demand immediate repayment of their debt.
Tropicana is appealing the denial of its Atlantic City casino license.
“If Tropicana is unable to cure the default, a bankruptcy filing is possible,” Moody’s said in a statement. Even if the company can avoid default and sell its Atlantic City, Evansville (Indiana) and Vicksburg (Mississippi) properties as planned, “Tropicana’s credit profile will deteriorate significantly.”
Moody’s cut Tropicana’s rating by two notches to “Caa3,” nine steps below investment grade, from “Caa1.” The rating remains on review for further downgrade, Moody’s said.
Though Friday’s ruling increases the likelihood of a bankruptcy filing, it was a win for bondholders because it gives them a voice in how the company proceeds, high-yield research firm KDP Investment Advisors said in a report on Monday.
“Without a filing, the company would limp along, likely paying off its entire operating company term loan, resulting in a credit which would barely meet remaining interest costs,” KDP analyst Barbara Cappaert wrote.
Tropicana Entertainment is one of the largest privately held gaming companies in the United States. (Reporting by Dena Aubin; Editing by Jonathan Oatis)