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Pinnacle Entertainment pays debt from efficient cash flow

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Importance of cash

The amount of cash you have on hand is important, especially when it is not that easy for you to obtain credit in times of need. During a recession, banks and financial institutions are reluctant to lend money, and debt becomes more costly since interest rates are raised to compensate for the risk of borrowers not paying back their debts.

Part-4

Cash management

During the third quarter of 2014, Pinnacle Entertainment, Inc. (PNK) repaid ~$116 million of total debt from its cash flow from operations. The total debt comprised ~$107 million of aggregate principal amount of term loans and $9 million of outstanding revolving credit facility borrowings. Pinnacle Entertainment accomplished this with the help of efficient cash flow and working capital management as well as reductions in its growth capital commitments.

The above chart shows that Pinnacle Entertainment generated free cash flow of ~$97 million in the third quarter ending September 30, 2014. Pinnacle Entertainment’s peers Boyd Gaming (BYD) and Penn National Gaming (PENN) generated free cash flows of ~$53 million and ~$2 million, respectively, in the same period.

Exchange-traded funds (or ETFs) such as Consumer Discretionary Select Sector Standard & Poors depositary receipt (or SPDR) fund (XLY) and VanEck Vectors Gaming (BJK) helps investors hold a diversified portfolio in casino companies.

Pinnacle Entertainment’s management comment

Carlos Ruisanchez, president and chief financial officer (or CFO) of Pinnacle Entertainment (PNK), commented, “Since completing the Ameristar acquisition in August 2013, we have repaid approximately $770 million of term loans with cash from operations and asset sales proceeds through the end of the 2014 third quarter, for a net debt reduction of approximately $570 million after giving effect to revolving credit facility drawings during that period. As we move forward, we’ll continue to look for ways to better manage our working capital, prudently evaluate all capital expenditures, and dedicate our strengthening free cash flow to maintain the high quality level of our existing assets and to repay debt.”

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