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Revel Atlantic City. 

Danny Drake, Oct. 5, 2011

Moody’s Investors Service has lowered its corporate credit ratings for Revel, warning of a “significant shortfall” with the $2.4 billion megaresort’s gambling revenue and profits.

Wednesday’s downgrade followed similar action last week by Standard & Poor’s, another major Wall Street credit ratings firm.

In making its announcement, Moody’s cited Atlantic City’s “ongoing difficult operating environment” and the challenges it poses for Revel’s earnings in the months ahead.

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“Moody’s decision to lower Revel’s ratings considers the significant shortfall in the company’s revenues and earnings relative to Moody’s expectations,” the firm said in a statement.

Revel, which opened April 2, has been mired in eighth place each month for gambling revenue among Atlantic City’s 12 casino hotels. Revel also posted a nearly $35.2 million operating loss in the second quarter.

Revel announced Monday that it is lining up a new $100 million financing package to give it some extra room through 2013 and beyond. Revel spokesman Joseph Jaffoni said the deal is expected to close in about a week.

Jaffoni declined to directly comment on the Moody’s report. He did say that Revel has an operating and business strategy in place that is running close to projections so far and has a “tremendous upside” for the future.

Moody’s noted some improvement in Revel’s gambling revenue, which increased from $14.9 million in June to $17.5 million in July. However, it expressed concern that Revel is not generating enough revenue to meet its expenses and debt payments.

“Based on these results, Moody's has increased concern that Revel will not be able to achieve targeted business volumes and earnings necessary to cover its fixed-charge burden,” the rating agency said.

All of Revel’s corporate ratings were lowered or placed on review for downgrade by Moody’s, including dropping the casino operator from “B3” to “Caa1” for its $900 million term loan due 2017. The rating downgrades reflect Moody’s belief that Revel’s debt is riskier and there is a greater chance of default.

Last Friday, Standard & Poor’s downgraded Revel’s corporate credit rating, citing the casino’s lackluster gambling revenue. S&P also warned that Revel’s cash flow is unlikely to be enough to meet annual debt payments, capital expenses and other costs, estimated to be $120 million starting in 2013.

“The downgrade reflects our view that a strong opening for the Revel resort was critical to the company's ability to ramp up cash flow generation to a level sufficient to service its capital structure. While one of the tenets of the company’s strategy is to appeal to the nongaming customer, the property is heavily reliant on the success of its casino,” S&P said.

Wall Street casino analysts have repeatedly labeled Revel’s results so far as “disappointing” and “lackluster.” Andrew Zarnett, an analyst for Deutsche Bank, said Revel’s gambling revenues “have clearly been underwhelming.” Instead of expanding the Atlantic City market, as originally hoped, Revel’s modest gambling revenue has been cannibalized from existing casinos, he said.

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