Dow tumbles, casino stocks slide on bailout plan worries

Volatility again rocked the financial markets Monday, sending stocks, including those of Las Vegas casino companies, reeling. Investors grew nervous about an amorphous government plan to buy $700 billion in banks' mortgage debt.

The Dow Jones industrials fell 372.75 points to 11,015.69. The S&P Gaming Index fell 14.58 to 250.94. Three of the largest gaming companies recorded double-digit percentage declines, erasing any pickup that share prices earned at the end of last week.

Oppenheimer gaming analyst David Katz suggested the bailout may force casino operators to pay more for financing, possibly hindering potential growth beyond projects already financed. In a research note, Katz said investors should eye the casino industry cautiously.

"Our analysis of the bank financing and covenants for the casino operators in our coverage universe suggests that the cost of capital could increase significantly for most companies, while liquidity issues could become increasingly acute for some," Katz said. "We believe the current financing outlook is a potentially critical issue for the casino operators, given both the challenging operating environment coupled with the tightening of bank credit."

On the New York Stock Exchange on Monday, Las Vegas Sands Corp. shares fell $7.75, or 17.69 percent, to close at $36.05; MGM Mirage fell $4.68, or 13.38 percent, to $30.30; and Boyd Gaming Corp. shares fell $1.28, or 11.31 percent, to $10.04.

Las Vegas Sands, which operates two resorts on the Strip, two resorts in Macau and is spending $12 billion to increase its footprint on Macau's Cotai Strip, on Friday had its corporate credit and issue-level ratings cut by Standard & Poor's Ratings Services. The agency said liquidity worries prompted the cut.

Katz said Las Vegas-based casino operators, including MGM Mirage, Pinnacle Entertainment and Ameristar Casinos, all face challenging, but manageable, financial circumstances that could last through 2010.

"All have attractive and inexpensive financing in place at present, but appear to be operating close to their financial covenants," Katz said. "Breaking these covenants or adding new financing to avoid breaking them could increase their overall cost of capital."

Deutsche Bank analyst Andrew Zarnett said he expects casino companies to adjust their credit agreements over the next year to avoid breaching covenants. Last week, Wynn Resorts Ltd. announced an amendment to its credit facility.

On the Nasdaq National Market on Monday, Ameristar shares fell $1.43, or 8.43 percent, to $15.53; Pinnacle shares fell 76 cents, or 7.36 percent, to $9.57; and Wynn Resorts shares fell $5.81, or 6.12 percent, to $89.19.

As stocks suffered, investors sought safety in hard assets such as gold and oil.

Gold rose $43.30 to $903.90 an ounce. Light, sweet crude for October delivery rose $16.37 to settle at $120.92 on the New York Mercantile Exchange. Earlier in the day, oil prices had jumped as much as $25.45 to $130 a barrel.

The Associated Press contributed to this report.