Gaming and Leisure Properties (GLPI) Remains on CreditWatch Negative at S&P Following Boosted Pinnacle (PNK) Offer

Standard & Poor's Ratings Services said that that its ratings on U.S.-based gaming real estate investment trust (REIT) Gaming and Leisure Properties (Nasdaq: GLPI), including its 'BB+' corporate credit rating, remain on CreditWatch, where we had placed them with negative implications on March 10, 2015.

The CreditWatch update follows GLPI's announcement today that it has significantly increased its offer consideration to acquire Pinnacle Entertainment Inc.'s real estate assets. GLPI raised its offer to $5 billion from its original offer of approximately $4.1 billion in March 2015. GLPI also revised some of the terms and expected funding for the acquisition. GLPI is now planning to fund the acquisition, including the additional consideration being offered to Pinnacle shareholders, with additional equity. Specifically, GLPI is offering Pinnacle shareholders 57 million GLPI shares (compared with 36 million previously), and the company intends to fund the acquisition with about $2 billion in new debt and $1 billion in new equity (compared with $2.3 billion in new debt and $800 million in new equity previously). Under the current proposal, GLPI intends to finance the acquisition in a manner that would limit the increase in initial leverage to around 5.5x, which is our threshold for the corporate credit rating on GLPI, and represents an improvement from the previous 6x level the company had indicated.

"In resolving the CreditWatch listing, we will review the final terms of the transaction," said Standard & Poor's credit analyst Ariel Silverberg. "These include the company's prospective debt structure, potential equity raise, and planned master lease agreement for Pinnacle's assets relative to its publicly stated financial policy goal of maintaining leverage of 5.5x, which is our leverage threshold above which we could consider lowering our rating on GLPI." We will update the CreditWatch listing once we have sufficient information around the final terms and timing of the transaction.

We could lower the rating by one notch to 'BB' if we expect that GLPI will maintain leverage above 5.5x or EBITDA coverage of interest expense below 3x over the long term. This could occur if the acquisition purchase price and the assumed debt to complete the transaction increase, if we believe GLPI would experience delays in raising the equity level it expects to use to partly fund the acquisition, or if we believe the equity raise would be unsuccessful. Additionally, downside pressure would exist if we believed GLPI would embark on additional acquisitions or other significant development opportunities that resulted in adjusted leverage remaining above 5.5x or EBITDA coverage of interest below 3x, or if we believed the credit quality of GLPI's current and sole tenant had deteriorated to a point it would pressure the company's credit quality.

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