Moody's lowers bond ratings for Harrah's, Station

LAS VEGAS, Nevada -- Moody's Investors Service downgraded bond ratings Thursday for Harrah's Entertainment and Station Casinos based on declining gaming revenues in Las Vegas.

The ratings service also put casino giants MGM Mirage and Las Vegas Sands Corp. on notice that the bonds covering their debt were now on review for a possible downgrade.

Combined, the bonds that were downgraded and being considered for a downgrade cover more than $38.3 billion in debt.

"The decline in overall Las Vegas gaming market revenue through May was worse than Moody's had anticipated, is expected to continue and indicative of tougher times ahead," Moody's Senior Vice President Keith Foley said in a statement. "Additionally, the weaker economy is taking its toll on the Las Vegas Strip as casino operators in that market are experiencing fewer visitors, shorter stays and lower spend per visitor."

In June, Moody's warned Las Vegas casino operators their bonds could be vulnerable to negative rating actions if gaming revenues continued to decline.

Last week, Nevada casino regulators said Strip gaming revenues fell more than 16 percent in May from a year ago and are down 5.4 percent for the first five months of 2008. On the same day, it was reported that gaming revenues in Atlantic City declined 11 percent in June.

Wachovia gaming analyst Dennis Farrell Jr. said the Moody's announcement was not good news. However, for publicly traded companies, such as MGM Mirage and Las Vegas Sands, their declining stock prices may have already taken into account potential downgrades in the bonds. Privately held Harrah's and Station Casinos, he said, are carrying the highest debt levels in their history.

"The credit markets have weakened dramatically in the last three to four weeks," Farrell said. "We've seen a large investor pullback in the demand for gaming and lodging companies. The pace of the deterioration in the financial performances of some of the top-line companies are concerning investors."

While the health of the gaming industry as a whole caused Moody's to take a closer look at the various casino operators, the ratings service had different concerns for each company.

Moody's downgraded various classes of debt issued by Harrah's, which totaled approximately $16 billion, and took the company's corporate family rating to B3 from B2. Moody's said that it expected Harrah's credit rating will deteriorate from what it termed as "already weak levels. This is in contrast to our expectations of modest deleveraging over the next few years."

MGM Mirage's approximately $13 billion in debt was placed on review because the company still needs to complete financing for its $9.2 billion CityCenter development.

"The review will focus on evolving operating trends in the Las Vegas gaming market, the final terms of the CityCenter financing and their impact on the company's liquidity and intermediate term credit profile," Moody's said in a statement.

MGM Mirage spokesman Alan Feldman said the company expects to complete the final $3 billion of financing for CityCenter by the end of August.

"We're highly confident that we will get this deal done, and it will be distinctive in the challenging market," Feldman said. He said American, European and Asian banks would be involved in the transaction.

Moody's put the bonds covering $5.3 billion of Las Vegas Sands debt on review solely due to the weak Las Vegas gaming market. Moody's did not put bonds covering Las Vegas Sands' expanding holdings in Macau under review.

Declining growth, Moody's said, might make it difficult for Las Vegas Sands to maintain the company's long-term debt versus cash flow ratio needed to retain its rating.

Station Casinos saw approximately $3.2 billion in debt downgraded by Moody's because of the slumping gaming market. A separate $815 million in rated debt covering the Green Valley Ranch Resort was also downgraded.

Moody's also expressed concern that Green Valley Ranch, which is a joint venture between Station Casinos and developer Greenspun Corp., will need to seek debt relief from its bank lenders by next March.

"Given the pace of deterioration in the market, economic stress in the Las Vegas economy along with high debt levels incurred to finance its leveraged buyout, Station's consolidated credit metrics are expected to weaken," Moody's said in a statement.