New York (AP) — Casino operators‘ shares skidded Monday as investors questioned whether growing capital and liquidity concerns would hinder their financials and stifle their growth plans.
Gaming companies hinge their success on continued growth, and many have started to falter as major projects unravel.
The sector’s stock fell more on Monday than the broader market, which was anxiously awaiting details about the government’s plan to purchase USD 700 billion in banks‘ mortgage debt.
David Katz of Oppenheimer & Co. said in a client note that funding limitations for casino operators could lead to a significant increase in near-term costs.
Among those whose liquidity could be pressured is MGM Mirage, which is still working on the USD 9.1 billion CityCenter project in Las Vegas. MGM Mirage’s stock fell USD 4.68, or 13.4 percent, to close at USD 30.30 on Monday.
Katz anticipates MGM Mirage may have a hard time securing investment partner Dubai World’s contribution to the project, which could put the majority or all of the investment arm’s contribution on MGM‘s balance sheet. If this happens, MGM might ask for its covenants to be reset, or it might seek additional funding through a preferred-equity investment, Katz explained.
Another company whose development pipeline may be disrupted is Las Vegas Sands Corp. Standard & Poor’s Ratings Services cut its corporate credit and issue-level ratings late Friday, due to liquidity worries. The ratings agency cited current capital market issues, Las Vegas Strip softness, a possible Macau slowdown and the need to find large amounts of capital for its development pipeline.
While Ameristar Casinos Inc. does not expect to violate its senior debt leverage covenant, Katz said it may have to issue new subordinated debt to lower its revolving credit line and senior leverage.
„We believe this strategy would raise the company’s overall cost of capital, but would have far less impact than violating the senior covenant,“ the analyst wrote.
Meanwhile, Boyd Gaming Corp.’s suspension of its USD 4.8 billion Echelon project last month may have worried investors, but Katz says it is the right move.
„The company would have faced considerable challenges in remaining within its allowable leverage with approximately USD 900 million of capital spending in 2008 and 2009 while demand trends have continued to weaken,“ he said.
Las Vegas Sands shares dropped USD 7.75, or 17.7 percent, to close at USD 36.05.
Boyd’s shares slipped USD 1.28, or 11.3 percent, to USD 10.04.