December 16, 2005 | Cbonds
|Standard & Poor's Ratings Services said today it assigned its 'B' long-term corporate credit and senior unsecured debt ratings, and 'ruA-' Russia national scale rating, to Cyprus-domiciled Ritzio Entertainment Group Ltd. (Ritzio), the operator of gaming businesses in Russia and other countries. The outlook is stable.|
"The ratings on Ritzio reflect the company's vulnerability to changes in the Russian gaming legislation and aggressive leverage levels," said Standard & Poor's credit analyst Anna Overton. "These factors are tempered by the company's market-leading position in the cash-generative slot-machine market of the Russian Federation and a number of smaller slot markets in other countries. The company benefits from its critical mass and location diversity across a nearly 780-strong portfolio of slot halls."
Although it appears unlikely that the Russian legislative will actively seek to ban existing licensed operators of slot machines, material changes in compliance and taxation procedures might occur. This could result in a severe short-term impact on the group's cost structure and operating cash flows. Furthermore, the group is pursuing a dynamic expansion program, which, combined with limited access to additional equity, restricts the discretionary cash flow that could cushion the impact of adverse changes in the operating environment. With expected gross funded debt in 2006 of about $350 million and capitalized operating lease obligations in excess of $200 million, Ritzio would be aggressively leveraged at about 2.5x EBITDA on a fully adjusted basis.
We expect Ritzio to continue its stable and profitable growth, in the absence of legislative changes that could prohibit the company from operating in its current form. A temporary shift in profitability and debt-protection metrics if the company needs to adjust to changes in the regulatory environment can be accommodated at the current rating level, however. Changes in licensing laws and taxation, as well as over-ambitious expansion, are key credit risks for Ritzio. A firmer legislative base in Russian gaming, as well as the continuation of profitable business development trends would signal upside potential for the rating.
Company: Voulkan (Ritzio Group)
|Full company name||Voulkan (Ritzio Entertainment Group)|
|Country of risk||Russia|
|Country of registration||Russia|