NEW YORK - Fitch Ratings said it has downgraded the Agua Caliente Band of Cahuilla Indians's (Agua) issuer rating to BB from BB-plus; revenue bonds, series 2003 to BB-plus from BBB-minus; and senior secured notes, series 2006, 2007, and 2008 to BB-plus from BBB-minus.
The rating outlook remains negative.
The downgrade reflects the continued poor operating performance at Agua's two casino properties in the Palm Springs, Calif., region, which has exceeded Fitch's prior expectations.
Through the first nine months of fiscal 2010 (fiscal year ends Sept. 30) EBITDA declined by 10% compared to the same period last year. The primary credit strength supporting Agua's BB issuer rating is the credit's solid albeit deteriorating liquidity profile.
Despite the poor operating trends, both properties generate strong free cash flow in excess of the gaming division's fixed expenses, there are no significant near-term debt maturities, and no capital project development risk.
When Fitch downgraded Agua's issuer rating to BB-plus in December 2009, Fitch indicated that maintaining the BB-plus rating was predicated on the expected stabilization of operating trends (i.e. fewer bad trends) and that continued significant operating declines would likely lead to further rating pressure.
Agua's EBITDA fell during its peak season by 18% and 16% in May and June, respectively, an acceleration from the more moderate declines seen in the first seven months of the fiscal year.
There was no room in the previous rating for the sequential deterioration, which primarily drove the rating downgrade. With unemployment rate lingering around 14%-15% in the Riverside-San Bernardino MSA and more than 4% of the households in the area filing for foreclosure in the first half of 2010 (RealtyTrac.com), a meaningful recovery in demand seems unlikely in the near term.
