v2.4.0.6
Fair Value Measurements
 3 Months Ended
Mar. 31, 2013
Fair Value Disclosures [Abstract]  
Fair Value Disclosures
FAIR VALUE MEASUREMENTS

We have adopted the authoritative accounting guidance for fair value measurements, which does not determine or affect the circumstances under which fair value measurements are used, but defines fair value, expands disclosure requirements around fair value and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions.

These inputs create the following fair value hierarchy:

Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

As required by the guidance for fair value measurements, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Thus, assets and liabilities categorized as Level 3 may be measured at fair value using inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Management's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels.

Balances Measured at Fair Value
The following tables show the fair values of certain of our financial instruments.
 
March 31, 2013
 
Balance
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
358,354

 
$
358,354

 
$
—

 
$
—

Restricted cash
25,005

 
25,005

 
—

 
—

CRDA deposits
29,101

 
—

 
—

 
29,101

Investment available for sale
18,223

 
—

 
—

 
18,223

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Merger earnout
$
8,983

 
$
—

 
$
—

 
$
8,983

Contingent payments
4,522

 
—

 
—

 
4,522


 
December 31, 2012
 
Balance
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
192,828

 
$
192,828

 
$
—

 
$
—

Restricted cash
22,900

 
22,900

 
—

 
—

CRDA deposits
28,464

 
—

 
—

 
28,464

Investment available for sale
17,907

 
—

 
—

 
17,907

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Merger earnout
$
9,800

 
$
—

 
$
—

 
$
9,800



Cash and Cash Equivalents
The fair value of our cash and cash equivalents, classified in the fair value hierarchy as Level 1, is based on statements received from our banks at March 31, 2013 and December 31, 2012.

CRDA Deposits
The fair value of Borgata's CRDA deposits, classified in the fair value hierarchy as Level 3, is based on estimates of the realizable value applied to the balances on statements received from the CRDA at March 31, 2013 and December 31, 2012.

Investment Available for Sale
We are the only holder of the City Bonds and there is no quoted market price for this instrument. As such, the fair value of this investment is classified as Level 3 in the fair value hierarchy. The estimate of the fair value of such investment was determined using a combination of current market rates and estimates of market conditions for instruments with similar terms, maturities, and degrees of risk and an estimate from an independent source of what market participants would use in pricing the bonds. Unrealized gains and losses on this instrument resulting from changes in the fair value of the instrument are not charged to earnings, but rather are recorded as other comprehensive income (loss) in the stockholders' equity section of the Company's balance sheets. The carrying value of the investment available for sale is included in Other assets, net, on the consolidated balance sheets. The discount associated with this investment is netted with the investment on the consolidated balance sheets and is being accreted over the life of the investment using the effective interest method. The accretion of such discount is included in Interest income on the consolidated statements of operations.

Merger Earnout
Under the terms of the Merger Agreement, Boyd Acquisition II, LLC, an indirect wholly owned subsidiary of Boyd, is obligated to make an additional payment to PGP in 2016 if Kansas Star Casino's ("KSC") EBITDA, as defined in the Merger Agreement, for 2015 exceeds $105.0 million. The additional payment would be equal to 7.5 times the amount by which KSC's 2015 EBITDA exceeds $105.0 million. The actual payout will be determined based on actual EBITDA of KSC for calendar year 2015, and payments are not limited by a maximum value. If the actual 2015 EBITDA of KSC is less than the target, the Company is not required to make any additional consideration payment. The liability was initially recorded upon consummation of the Merger, at the estimated fair value of the earnout using the modified Black-Scholes option pricing model, which requires the following assumptions: expected EBITDA volatility, forecasted 2015 EBITDA, risk-free interest rates and risk adjusted discount rate. We formed our assumptions using historical experience in the gaming industry and observable market conditions. The contingent consideration agreement will be fair valued periodically with updated assumptions and any change in the fair value of the obligation will be included in the Consolidated Statements of Comprehensive Income (Loss). At March 31, 2013 and December 31, 2012, there were outstanding liabilities of $9.0 million and $9.8 million, respectively, related to the merger earnout which are included in Other liabilities on the condensed consolidated balance sheets.

Contingent Payments
In connection with KSC’s acquisition of the land upon which KSC’s casino was developed, KSC agreed to pay a former casino project developer and option holder 1% of KSC’s EBITDA each month for a period of ten years commencing December 20, 2011. The liability was initially recorded upon consummation of the Merger, at the estimated fair value of the contingent land purchase price using a discounted cash flows approach. At March 31, 2013, there was a current liability of $0.9 million related to this agreement which is included in Accrued liabilities on the respective condensed consolidated balance sheets and a long-term obligation of $3.6 million which is included in Other liabilities on the respective condensed consolidated balance sheets.

The following table summarizes the fair value of the Company's Level 3 assets and liabilities for the three months ended March 31, 2013.
 
Three Months Ended March 31, 2013
 
Assets
 
Liabilities
 
Investment
Available for
Sale
 
CRDA
Deposits
 
Merger
Earnout
 
Contingent
Payments
 
(In thousands)
Balance at January 1, 2013
$
17,907

 
$
28,464

 
$
(9,800
)
 
$
(4,563
)
Total gains (losses) (realized or unrealized):
 
 
 
 
 
 
 
Included in earnings
21

 
637

 
817

 
(194
)
Included in other comprehensive income (loss)
295

 
—

 
—

 
—

Transfers in or out of Level 3
—

 
—

 
—

 
—

Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
Settlements
—

 
—

 
—

 
235

Ending balance at March 31, 2013
$
18,223

 
$
29,101

 
$
(8,983
)
 
$
(4,522
)
 
 
 
 
 
 
 
 
Gains (losses) included in earnings attributable to the change in
   unrealized gains relating to assets and liabilities still held at
   the reporting date:
 
 
 
 
 
 
 
Included in interest income
$
21

 
$
—

 
$
—

 
$
—

Included in interest expense
—

 
—

 
—

 
(194
)
Included in non-operating income
—

 
—

 
817

 
—



The table below summarizes the significant unobservable inputs used in calculating fair value for our Level 3 assets and liabilities:
 
Valuation
Technique
 
Unobservable
Input
 
Rate
Investment available for sale
Discounted cash flow
 
Discount rate
 
10.5
%
CRDA deposits
Valuation Allowance
 
Reserves
 
33.0
%
Merger earnout
Option Model
 
Risk-free interest rate
 
0.4
%
 
 
 
Risk-adjusted discount rate
 
14.5
%
 
 
 
EBITDA volatility
 
21.3
%
Contingent payments
Discounted cash flow
 
Discount rate
 
18.5
%


Balances Disclosed at Fair Value
The following tables provide the fair value measurement information about our note receivable, obligation under minimum assessment agreements and other financial instruments at March 31, 2013 and December 31, 2012.
 
March 31, 2013
 
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
 
(In thousands)
Assets
 
 
 
 
 
 
 
Note receivable
$
2,488

 
$
2,488

 
$
2,488

 
Level 3
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Obligation under assessment arrangements
$
38,345

 
$
29,049

 
$
28,795

 
Level 3
Other financial instruments
500

 
421

 
421

 
Level 3

 
December 31, 2012
 
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
 
(In thousands)
Assets
 
 
 
 
 
 
 
Note receivable
$
2,470

 
$
2,470

 
$
2,470

 
Level 3
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Obligation under assessment arrangements
$
38,787

 
$
29,335

 
$
29,113

 
Level 3
Other financial instruments
500

 
413

 
413

 
Level 3


 
March 31, 2013
 
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
 
(In thousands)
Boyd Debt:
 
 
 
 
 
 
 
Boyd Gaming Debt:
 
 
 
 
 
 
 
Bank credit facility
$
1,445,025

 
$
1,437,695

 
$
1,450,813

 
Level 2
9.125% Senior Notes due 2018
500,000

 
492,990

 
527,750

 
Level 1
9.00% Senior Notes due 2020
350,000

 
350,000

 
366,538

 
Level 1
6.75% Senior Subordinated Notes due 2014
215,668

 
215,668

 
215,938

 
Level 1
7.125% Senior Subordinated Notes due 2016
240,750

 
240,750

 
243,759

 
Level 1
Other
147,800

 
118,655

 
123,424

 
Level 3
 
2,899,243

 
2,855,758

 
2,928,222

 
 
 
 
 
 
 
 
 
 
Peninsula Gaming Debt:
 
 
 
 
 
 
 
Bank credit facility
843,738

 
843,738

 
857,152

 
Level 2
8.375% senior notes due 2018
350,000

 
350,000

 
371,875

 
Level 1
Other
19

 
19

 
19

 
Level 3
 
1,193,757

 
1,193,757

 
1,229,046

 
 
Total Boyd debt
4,093,000

 
4,049,515

 
4,157,268

 
 
 
 
 
 
 
 
 
 
Borgata Debt:
 
 
 
 
 
 
 
Borgata bank credit facility
14,000

 
14,000

 
14,000

 
Level 2
Borgata 9.50% Senior Secured Notes due 2015
398,000

 
390,205

 
418,059

 
Level 1
Borgata 9.875% Senior Secured Notes due 2018
393,500

 
384,102

 
414,379

 
Level 1
Total Borgata debt
805,500

 
788,307

 
846,438

 
 
Total debt
$
4,898,500

 
$
4,837,822

 
$
5,003,706

 
 

 
December 31, 2012
 
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
 
(In thousands)
Boyd Debt:
 
 
 
 
 
 
 
Boyd Gaming Debt:
 
 
 
 
 
 
 
Bank credit facility
$
1,474,850

 
$
1,466,635

 
$
1,508,516

 
Level 2
9.125% Senior Notes due 2018
500,000

 
492,680

 
523,995

 
Level 1
9.00% Senior Notes due 2020
350,000

 
350,000

 
347,158

 
Level 1
6.75% Senior Subordinated Notes due 2014
215,668

 
215,668

 
216,460

 
Level 1
7.125% Senior Subordinated Notes due 2016
240,750

 
240,750

 
236,537

 
Level 1
Other
158,141

 
125,475

 
123,424

 
Level 3
 
2,939,409

 
2,891,208

 
2,956,090

 
 
 
 
 
 
 
 
 
 
Peninsula Gaming Debt:
 
 
 
 
 
 
 
Bank credit facility
854,400

 
854,400

 
868,838

 
Level 2
8.375% Senior Notes due 2018
350,000

 
350,000

 
367,721

 
Level 1
Other
494

 
491

 
494

 
Level 3
 
1,204,894

 
1,204,891

 
1,237,053

 

Total Boyd Debt
4,144,303

 
4,096,099

 
4,193,143

 

 
 
 
 
 
 
 
 
Borgata Debt:
 
 
 
 
 
 
 
Borgata bank credit facility
20,000

 
20,000

 
20,000

 
Level 2
Borgata 9.50% Senior Secured Notes due 2015
398,000

 
389,547

 
402,275

 
Level 1
Borgata 9.875% Senior Secured Notes due 2018
393,500

 
383,777

 
373,825

 
Level 1
Total Borgata debt
811,500

 
793,324

 
796,100

 
 
Total debt
$
4,955,803

 
$
4,889,423

 
$
4,989,243

 
 


The estimated fair value of the Credit Facility is based on a relative value analysis performed on or about March 31, 2013 and December 31, 2012. The estimated fair value of Borgata's bank credit facility at March 31, 2013 and December 31, 2012 approximates its carrying value due to the short-term nature and variable repricing of the underlying Eurodollar loans comprising the Borgata bank credit facility. The estimated fair values of our senior subordinated and senior notes and Borgata's senior secured notes are based on quoted market prices as of March 31, 2013 and December 31, 2012, respectively. Debt included in the “Other” category is fixed-rate debt that is due March 2013 and is not traded and does not have an observable market input; therefore, we have estimated its fair value based on a discounted cash flow approach, after giving consideration to the changes in market rates of interest, creditworthiness of both parties, and credit spreads.

There were no transfers between Level 1, Level 2 and Level 3 measurements during three months ended March 31, 2013 or 2012.

Fair Value of Non-Recourse Obligations of Variable Interest Entity
At March 31, 2013 and December 31, 2012, the carrying value of LVE's long-term debt approximates its fair value due to the prevailing interest rates on the debt, which are comparable to market.