oting Herbst generates annual net revenue of about us$ 630 million, Moody's analysts said the company remains highly leveraged with a debt/EBITDA ratio of about 5. EBITDA is a profitability measure meaning earnings before interest, taxes, depreciation and amortization.
In the third quarter, Herbst said casino EBITDA came in at us$ 15.2 million and slot route EBITDA was us$ 1.2 million for a total of us$ 16.4 million. "Herbst's B2 Corporate Family Rating considers the company's significant exposure to Nevada gaming markets and its high leverage. This subjects the company to greater risks than a gaming company that operates in a more stable gaming market and is more geographically diverse," Moody's said today. "The ratings are supported by the solid performance of the company's Midwest casino properties and the company's good liquidity profile."
About 65 % of Herbst's net revenue and 35 % of its property-level EBITDA comes from the company's Nevada casinos and route operations, Moody's said, adding: "Nevada was hit extremely hard by the recent recession, continues to have one the highest unemployment rates in the U.S. and will likely be one of the slowest gaming markets to recover."
Moody's noted Herbst has about us$ 100 million of cash "that should be sufficient to help fund short-term working capital or modest capital expenditure needs."
Another debt rater, Standard & Poor's, has also issued a stable outlook on the Herbst debt. "Our rating incorporates our expectation that both revenue and EBITDA will decline in the low-single-digit percentage area in 2011 versus 2010. This decrease is largely attributable to our anticipation of continued declines in the Nevada casinos and the route business given ongoing economic weakness in that region. We believe these declines will be largely offset by modest growth in the Midwest casinos and stability in Herbst's other businesses," Standard & Poor's said in its Jan. 13 rating report on Herbst.
S&P assigned a B corporate credit rating to Herbst and rated the term loan B+. "The stable rating outlook reflects our expectation that the company will continue to generate levels of cash flow sufficient to support the capital structure and maintain credit measures appropriate for the rating," S&P's report said.