Moody’s report says casino companies in fragile position

Nevada's fragile recovery in gaming revenues could be shattered by even a minor blip in the national economy, causing major financial problems for many Las Vegas casino companies, a leading bond rating house said Tuesday.

Moody's Investors Service in a special industry report noted that comments from the Federal Reserve concerning a slowdown in consumer spending and continued high unemployment raises red flags for the local gaming industry.

Moody's Senior Vice President Keith Foley said the problems could prompt ratings downgrades for casino companies, which would in turn hamper their ability to borrow money.

"We are concerned that consumers' propensity to spend on gaming activities will not withstand another hit to their wallets, even a small one," Foley said.

The Fed's Open Market Committee report of June 22 painted a dour picture of the U.S. economy. Among the issues cited were the federal deficit, spillover from the European debt crisis, high unemployment and the housing recession.

Hammered by years of recession, Nevada's gaming industry has been plagued by bankruptcy filings, job losses, the sale of properties and billions of dollars in debt restructuring.

Moody's singled out two major Las Vegas-based companies, Caesars Entertainment Corp. and MGM Resorts International, saying they are more vulnerable than their competitors.

Foley said Caesars and MGM Resorts are "more reliant on continued economic improvements to grow out of their high (debt) leverage than higher-rated companies are."

MGM Resorts, with $12 billion in debt, faces "significant near-term debt maturities," the report noted.

Caesars, a privately held gaming company, has no significant debt maturities until 2015 but does have long-term debt of $18.5 billion .

The report also said Las Vegas-based Boyd Gaming Corp. and Pinnacle Entertainment Inc. face near-term issues because of economic challenges.

Both companies were credited with "lowering their expenses" and creating "a significant amount of breathing room in their covenants and debt maturity schedules."

But Foley cautioned, "they are highly leveraged and have company-specific, near-term risks that could be exacerbated if consumers decided to curb their gambling budgets."

The report noted companies with large Asian holdings, such as Las Vegas Sands Corp. and Wynn Resorts Ltd., are better positioned than are firms concentrated in the U.S.

"This region continues to experience strong and growing visitation and consumer demand trends, which we expect to continue for the foreseeable future," Foley wrote.

Visitor arrivals in Macau, for example, increased 9.4 percent year-on-year to 2.3 million in May, according to the Statistics and Services Bureau. Las Vegas visitation rose 4.8 percent in April from 3.19 million in April 2010 to 3.35 million this year, according to the Las Vegas Convention and Visitor Authority.

The Moody's report cited Penn National Gaming Inc., owner of the M Resort, as a company that has diversified its operations into a leading market position.

Foley also said he expects MGM Resorts to benefit next year from a rebound in group and convention business in Las Vegas. Higher room and food and beverage will help the company offset to some degree an expected sluggish gaming demand. However, earnings growth alone "will not be enough to reduce leverage by any material degree," the report said.

Contact reporter Chris Sieroty at
csieroty@reviewjournal.com or 702-477-3893.