S&P Downgrades Gaming and Leisure Properties (GLPI) to 'BB'; Outlook Stable

Standard & Poor's Ratings Services today said it lowered its corporate credit rating on Gaming & Leisure Properties Inc. (Nasdaq: GLPI) to 'BB' from 'BB+' and removed the rating from CreditWatch, where we had placed it with negative implications on March 10, 2015. The outlook is stable.

At the same time, we lowered our issue-level ratings on GLPI's unsecured debt by one notch to 'BB+' from 'BBB-' and removed them from CreditWatch The recovery rating remains '2', reflecting our expectation for substantial recovery (70% to 90%; lower half of the range) for lenders in the event of a payment default.

"The downgrade of GLPI reflects our forecast for adjusted leverage to remain at least in the high-5x area through 2017, which is above the 5.5x leverage threshold we had set for a downgrade and above the company's publicly stated financial policy goal," said Standard & Poor's credit analyst Ariel Silverberg.

Management now expects that pro forma for the close of the Pinnacle acquisition, adjusted leverage will be 6x, as compared to 5.5x previously. Additionally, the downgrade reflects our view that the company's leverage tolerance has increased and that it would likely consider increasing leverage above its 5.5x financial policy goal in the future for additional acquisitions, particularly in times of significant volatility in the equity markets. Our revised forecast for leverage incorporates GLPI's recent announcement that it now intends to issue $500 million of new common equity to fund the Pinnacle Entertainment Inc. real estate acquisition, as compared to $1.1 billion previously, resulting in higher pro forma debt balances than we previously contemplated. Although GLPI has not yet announced how it plans to finance its acquisition of the Meadows Racetrack and Casino, our leverage forecast factors in a scenario where the acquisition of the Meadows Racetrack and Casino closes in the second half of 2016 and is funded with an equal mix of debt and equity in a manner that is modestly deleveraging.

The stable rating outlook reflects our expectation that, despite high leverage, GLPI's relatively stable and predictable cash flow base will support modest EBITDA growth and allow the company to modestly reduce leverage over the next two years, absent additional acquisitions. Under our base-case forecast, we expect adjusted leverage will remain at least in the high-5x area through 2017 given our forecast for some EBITDA growth and pro forma for the lower proposed level of equity issuance for the Pinnacle acquisition.

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