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Best of Howard Stutz

Gaming Guru

Howard Stutz

Casino operators try to beat the burden

7 September 2010

LAS VEGAS, Nevada -- With the bankruptcy reorganizations of Station Casinos and Herbst Gaming winding down, analysts and industry observers have turned their focus toward other casino operators.

Speculation abounds on whether companies will follow Station and Herbst into filing bankruptcy-court-administered plans of reorganization to wipe cumbersome debt loads off the books and create more manageable businesses.

Others believe corporate gaming executives have done enough to restructure long-term debt. Some of the largest casino operators negotiated maturity-date extensions of their obligations through a combination of adding new debt, increasing interest rates, or taking on new partners and investors.

Smaller, independent casinos have debt-management issues, too. The operators of the Riviera filed Chapter 11 bankruptcy in July. M Resort's primary lender held a private auction to sell $700 million of the property's debt.

"Most of the large-cap operators bought themselves some time," Wells Fargo Securities gaming analyst Dennis Farrell Jr. said. "With the one-off properties, we're seeing a lot of debt trading hands with people building positions in order to take control."

Farrell said that unless there is another serious dip in the economy, the major casino operators did their best to avoid bankruptcy.

"Most of these companies have cut costs as far they can," Farrell said. "There is not much else you can cut without sacrificing service. If they haven't already filed (bankruptcy), I think the time has passed."

The next steps for most debt-loaded casino operators will be dictated by the performance of various gaming jurisdictions through the end of the year.

The Strip's results will heavily influence MGM Resorts International (10 Strip hotel-casinos including CityCenter's Aria) and Harrah's Entertainment (nine Strip hotel-casinos including the Rio).

Companies heavily concentrated in Atlantic City (Harrah's with four of the seaside community's 11 casinos) will be hard-pressed to succeed. The market has suffered through 23 straight months of declining gaming revenues without any prospects of a rebound on the horizon.

"Trends and spending levels on the Las Vegas Strip can still be characterized as getting less bad," JP Morgan gaming analyst Joe Greff told investors in a recent report looking at gaming results from the first six months of the year.

Gaming revenues on the Strip are up 2.6 percent through June. Greff wrote that convention bookings seem to be trending upward, as well.

"The next relevant data points will be in September, with group business returning and likely having a positive impact on room mix," he said.

As for regional markets, Pennsylvania and Colorado are showing signs of growth, mainly due to regulatory changes. Colorado increased wagering limits and allowed casinos to remain open for 24 hours while Pennsylvania allowed its slot machine-only casinos to add table games.

Meanwhile, Macau continues to boom with gaming revenues through July, up some 70 percent over 2009. Those numbers help Macau market leaders Las Vegas Sands Corp. and Wynn Resorts Ltd. weather declining Las Vegas figures.

Las Vegas Sands is also picking up financial returns from its $5.7 billion investment in the Marina Bay Sands, the company's Singapore resort that opened in April.

"Initial gaming revenue results out of Singapore are very encouraging and suggest a very deep market that should generate very high cash flow margins, reflective of an attractive duopolistic market located in a financial hub in Asia with a relatively low gaming tax rate," Greff said.

For many casino operators, survival depends upon a host of variables.


A federal bankruptcy judge confirmed the company's two-pronged reorganization plan on Aug. 27. After Nevada gaming regulators and the National Indian Gaming Commission rule on the new corporate ownership structure, Station Casinos is expected to emerge intact in early 2011.

The reorganization reduced by $4 billion the $6 billion debt that sent Station Casinos into Chapter 11 in July 2009. The plan came together after the company reached agreements with its primary lenders and two groups of unsecured creditors who wiped out debt in exchange for ownership in the company.

Fertitta Gaming, which was formed by Station Casinos founders Frank Fertitta III and his brother Lorenzo, will operate the reorganized company. The Station name will remain in place.

The brothers put up $85 million for a 46 percent ownership stake in a new holding company owned by r