For the aforementioned reasons, look for ASCA to refinance sooner rather than later despite the current credit environment. The least painless approach is to float a subordinated bond indenture. My best guess is an offering of $200 to $250 million at 12%. The rate would be consistent with where Boyd Gaming’s sub debt trades. As shown in the following chart, this scenario results in an EPS hit of $0.10 to $0.20 or roughly 12-25% of my forward 12 month earnings estimate. It could be worse. EPS would be cut in half with a full refinancing of the credit facility or a covenant waiver. A subordinated debt offering buys the company some time. The current, attractive facility does mature in 2010, so the company has a maximum of 2 years left of over earning.
Another topic of interest for ASCA investors is the performance of Ameristar East Chicago following the opening of the new Horseshoe Hammond. It’s only been two weeks but Ameristar may be holding up a bit better than the company expected. We continue to believe property revenues will fall between 5 and 10% at East Chicago and the first two weeks are probably in that range. Stay tuned for more updates.