Casino Operators Find Receptive Credit Markets For Deals
May 28 2009 - 2:03PM
Dow Jones News
Credit markets are reopening for major casino operators with
investors hungrier for risk as their fears of economic Armageddon
subside.
But it's coming at a price. Gaming companies with sub-par
ratings are having to put up some of their prized casinos as
collateral, while paying hefty rates to pique investor interest.
Nevertheless, it's providing these companies with much-needed funds
to whittle down debt in a capital-starved market.
Ameristar Casinos, Inc. (ASCA) Wednesday announced that it
completed private offerings of $650 million of senior unsecured
notes due 2014, while Harrah's Entertainment began marketing $1
billion in eight-year notes secured by the company's casinos. MGM
Mirage (MGM) recently sold $1.5 billion in notes backed by a
first-priority lien on all the assets of the Bellagio Hotel and
Casino and the Mirage in Las Vegas.
"For Harrah's to be able to issue means there's appetite for the
riskiest names in the gaming sector," said Chris Snow, a gambling
analyst at CreditSights, noting the company's debt is rated in deep
junk territory.
The casinos have "structured these deals in ways that the
bondholders feel better protected," he said, noting the secured
deals carried hefty yields.
"MGM Mirage and Harrah's wouldn't have received strong investor
interest if they didn't have their casinos backing the issuance,"
Snow said.
He said it's normal for high-yield companies to issue
collateralized debt. But, secured deals are becoming more of a
trend for casinos companies as MGM Mirage hadn't used their casinos
as collateral in past bond deals.
MGM Mirage said it will repay $825.6 million in debt under its
senior credit facility after it sold the notes and $1.15 billion in
stock. The company is struggling to pay down more than $14 billion
in debt and was until recently facing a threat of bankruptcy.
Harrah's, which has struggled with its debt covenants and has
conducted two distressed debt exchange offers since last December,
said the proceeds from the note sale will retire a portion of an
existing term loan and revolving credit indebtedness.
The new gaming bonds come as the broader high-yield debt market
shows renewed life and amid hopes that casino industry has seen the
worst of a brutal economic downturn.
"It's an easier time to get a secured deal done, certainly for
the more distressed operators," said Michael Paladino, senior
director of gaming at Fitch Ratings.
He said Ameristar, which has seen its stock skyrocket rise 127%
since the beginning of the year, successfully issued unsecured debt
because its credit profile is stronger. In addition, its capital
structure prior to the deal was primarily bank debt.
"They don't have the type of exposure to the more volatile
(markets)" compared with the mega casino operators operating in Las
Vegas and Macau, Paladino added.
Indeed, regional casinos in America's heartland have stabilized
because they aren't as vulnerable to the weakness in nongaming
areas such as lodging, fine dining and air travel.
-By A.D. Pruitt, Dow Jones Newswires; 201-938-2269;
angela.pruitt@dowjones.com
(John Kell and Michael Aneiro contributed to this report)