v2.4.0.8
Fair Value Measurements
 9 Months Ended
Sep. 30, 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.
 
September 30, 2013
 
Balance
 
Level 1
 
Level 2
 
Level 3
(In thousands)
 
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
165,803

 
$
165,803

 
$
—

 
$
—

Restricted cash
27,191

 
27,191

 
—

 
—

CRDA deposits
3,726

 
—

 
—

 
3,726

Investment available for sale
17,937

 
—

 
—

 
17,937

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Merger earnout
$
8,983

 
$
—

 
$
—

 
$
8,983

Contingent payments
4,447

 
—

 
—

 
4,447


 
December 31, 2012
 
Balance
 
Level 1
 
Level 2
 
Level 3
(In thousands)
 
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
192,545

 
$
192,545

 
$
—

 
$
—

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

Contingent payments
4,563

 
—

 
—

 
4,563



Cash and Cash Equivalents and Restricted Cash
The fair value of our cash and cash equivalents and restricted cash, classified in the fair value hierarchy as Level 1, are based on statements received from our banks at September 30, 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 September 30, 2013 and December 31, 2012.

Investment Available for Sale
We have an investment in a single municipal bond issuance of $22.1 million aggregate principal amount of 7.5% Urban Renewal Tax Increment Revenue Bonds, Taxable Series 2007 that is classified as available for sale. We are the only holder of this instrument 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 a discounted cash flows analysis as of September 30, 2013 and December 31, 2012. 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 condensed consolidated balance sheets. At September 30, 2013 and December 31, 2012, $0.4 million and $0.3 million, respectively, of the carrying value of the investment available for sale is included as a current asset in prepaid expenses and other current assets, and at September 30, 2013 and December 31, 2012, $17.6 million is included in investment on the condensed consolidated balance sheets. The discount associated with this investment of $3.5 million and $3.6 million as of September 30, 2013 and December 31, 2012, respectively, is netted with the investment on the condensed 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 condensed consolidated statements of comprehensive income (loss).

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 determined in conjunction with the preliminary purchase price allocation 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. The fair value of the earnout liability is not yet finalized and is therefore subject to change. We formed our preliminary valuation 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 September 30, 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 each of September 30, 2013 and December 31, 2012, there was a current liability of $0.9 million related to this agreement which was recorded in accrued liabilities on the respective condensed consolidated balance sheets and long-term obligations of $3.5 million and $3.6 million, respectively, which were 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 and nine months ended September 30, 2013.
 
Three Months Ended September 30, 2013
 
Assets
 
Liabilities
 
Investment
Available for
Sale
 
CRDA
Deposits
 
Merger
Earnout
 
Contingent
Payments
(In thousands)
 
Balance at July 1, 2013
$
17,742

 
$
25,114

 
$
(8,983
)
 
$
(4,470
)
Deposits
—

 
1,738

 
—

 
—

Total gains (losses) (realized or unrealized):
 
 
 
 
 
 
 
Included in earnings
28

 
(581
)
 
—

 
(191
)
Included in other comprehensive income (loss)
167

 
—

 
—

 
—

Transfers in or out of Level 3
—

 
—

 
—

 
—

Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
Settlements
—

 
(22,545
)
 
—

 
214

Ending balance at September 30, 2013
$
17,937

 
$
3,726

 
$
(8,983
)
 
$
(4,447
)
 
 
 
 
 
 
 
 
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
$
28

 
$
—

 
$
—

 
$
—

Included in interest expense
—

 
—

 
—

 
(191
)
Included in non-operating income
—

 
—

 
—

 
—


 
Nine Months Ended September 30, 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
)
 
$
(14,363
)
Deposits
—

 
5,145

 
—

 
—

Total gains (losses) (realized or unrealized):
 
 
 
 
 
 
 
Included in earnings
78

 
(7,338
)
 
817

 
(578
)
Included in other comprehensive income (loss)
282

 
—

 
—

 
—

Transfers in or out of Level 3
—

 
—

 
—

 
—

Purchases, sales, issuances and settlements:
 
 
 
 
 
 
 
Settlements
(330
)
 
(22,545
)
 
—

 
10,494

Ending balance at September 30, 2013
$
17,937

 
$
3,726

 
$
(8,983
)
 
$
(4,447
)
 
 
 
 
 
 
 
 
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
$
78

 
$
—

 
$
—

 
$
167

Included in interest expense
—

 
—

 
—

 
(578
)
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
 
33.3
%
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 September 30, 2013 and December 31, 2012.
 
September 30, 2013
 
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
(In thousands)
 
Assets
 
 
 
 
 
 
 
Note receivable
$
2,524

 
$
2,524

 
$
2,524

 
Level 3
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Obligation under assessment arrangements
$
37,750

 
$
28,779

 
$
28,531

 
Level 3
Other financial instruments
400

 
336

 
336

 
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


The following tables provide the fair value measurement information about our long-term debt at September 30, 2013 and December 31, 2012.
 
September 30, 2013
 
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
(In thousands)
 
Boyd Debt:
 
 
 
 
 
 
 
Boyd Gaming Debt:
 
 
 
 
 
 
 
New Credit Facility
$
1,447,900

 
$
1,443,400

 
$
1,454,820

 
Level 2
9.125% Senior Notes due 2018
500,000

 
493,608

 
547,500

 
Level 1
9.00% Senior Notes due 2020
350,000

 
350,000

 
381,500

 
Level 1
Other
147,800

 
126,027

 
122,287

 
Level 3
 
2,445,700

 
2,413,035

 
2,506,107

 
 
 
 
 
 
 
 
 
 
Peninsula Gaming Debt:
 
 
 
 
 
 
 
Bank credit facility
826,213

 
826,213

 
833,375

 
Level 2
8.375% senior notes due 2018
350,000

 
350,000

 
381,500

 
Level 1
Other
14

 
14

 
14

 
Level 3
 
1,176,227

 
1,176,227

 
1,214,889

 
 
Total Boyd debt
3,621,927

 
3,589,262

 
3,720,996

 
 
 
 
 
 
 
 
 
 
Borgata Debt:
 
 
 
 
 
 
 
Borgata bank credit facility
16,300

 
16,300

 
16,300

 
Level 2
Borgata 9.50% Senior Secured Notes due 2015
358,200

 
352,405

 
370,737

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

 
384,776

 
410,224

 
Level 1
Total Borgata debt
768,000

 
753,481

 
797,261

 
 
Total debt
$
4,389,927

 
$
4,342,743

 
$
4,518,257

 
 

 
December 31, 2012
 
Outstanding Face Amount
 
Carrying Value
 
Estimated Fair Value
 
Fair Value Hierarchy
(In thousands)
 
Boyd Debt:
 
 
 
 
 
 
 
Boyd Gaming Debt:
 
 
 
 
 
 
 
Prior 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 New Credit Facility is based on a relative value analysis performed on or about September 30, 2013. The estimated fair value of the Prior Credit Facility is based on a relative value analysis performed on or about December 31, 2012. The estimated fair value of the Peninsula Credit Facility is based on the relative value analysis performed on or about September 30, 2013 and December 31, 2012. The estimated fair value of Borgata's bank credit facility at September 30, 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 September 30, 2013 and December 31, 2012, respectively. Debt included in the “Other” category has an escalating interest rate debt that is not traded and does not have an observable market input; therefore, we have estimated its fair value based on the short-term nature of the note (maturing is less than five years) 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 the nine months ended September 30, 2013 or 2012.

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