Saracen Development LLC, a wholly-owned company of the Quapaw Nation, announced upgrades in its credit rating on Thursday by Moody's and S&P, two of the world's three largest credit rating agencies.
Saracen owns Saracen Casino Resort at Pine Bluff.
"We are thrilled two such respected credit rating agencies like Moody's and S&P saw the need to upgrade our rating on the same day," Quapaw Nation Business Committee Chairman Joseph Tali Byrd said in a news release. "This rating upgrade sends a strong message that our Saracen gaming operation is performing well and confidence exists in our ability to service debt."
Moody's Investors Service ("Moody's") upgraded Saracen Development, LLC's (Saracen) Corporate Family Rating and $285 million senior secured notes due 2025 to B3 from Caa1 and its Probability of Default Rating to B3-PD from Caa1-PD. The rating outlook is positive.
S&P Global Ratings ("S&P") raised its issuer-credit rating on Saracen to 'B-' from 'CCC.' S&P also raised the issue-level rating on the company's senior secured notes by two notches to 'B-.' The rating outlook is positive.
"Moody's and S&P based their decisions on factors like our handling of the covid-19 crisis, the financial solvency of our business and our superiority in the Arkansas gaming market. This rating upgrade and the confidence it represents serves Quapaw Nation citizens well, along with the citizens of Pine Bluff and Jefferson County. This is fantastic news as we continue to strengthen our partnerships within the community," Byrd said.
In issuing the upgrade, Moody's cited that Saracen will generate annual EBITDA of between $64 million and $70 million in its first complete year of operations, above Moody's prior $60 million first-year EBITDA expectation. This performance was despite the challenges and uncertainty related to the coronavirus and Moody's initial concerns that there is only a limited history of commercial gaming in Arkansas.
EBITDA is earnings before interest, taxes, depreciation and amortization.
The credit rating agency also considered the improvement in Saracen's liquidity. Moody's estimates that Saracen will generate at least $20 million of free cash flow in its first full year of operations and maintain close to $25 million of unrestricted cash on its balance sheet.
Like Moody's, S&P noted the upgrade to 'B-' reflects Saracen's faster-than-expected EBITDA and cash flow ramp-up to a level that covers fixed charges despite delays in Saracen Casino Resort's opening and initial operating restrictions due to the covid-19 pandemic. As a result, the agency said it no longer believes Saracen faces challenges in meeting its fixed charges and expects its leverage to improve in the fiscal year 2021.
"A double credit rating upgrade on the same day by the world's two largest credit rating agencies is impressive on its own merits. But twin upgrades for a tribal entity is entirely unprecedented," said Quapaw Nation Business Committee Secretary-Treasurer Guy Barker.
"The factors leading to the increased rating for Saracen from both Moody's and S&P indicate increased confidence in both our financial performance and outlook from the biggest and most respected financial institutions in the country. This rating increase is external validation of our dedicated efforts to eliminate debt and is confirmation of our increased ability to do so," Barker said.