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Gaming Bonds Prove a Good Bet in Treacherous Market7 December 2000NEW YORK—Dec. 7, 2000 -- As reported in the Financial Times. "... Investors have always considered junk bonds to be something of a gamble. But in recent years, gambling has turned out to be one of the surest plays in the market. "As corporate bonds have plunged in value and new issuance has slowed to a trickle this year, bonds issued by gaming companies have been among the few to notch solid returns. The gaming component of the Salomon Brothers High Yield Bond Index has gained 7.5 per cent this year, while the overall index has fallen 3.5 per cent. "…Perhaps a more telling sign of the elevated standing of gaming companies among investors is that the only high-yield bond offering of any size currently braving the market is that of a casino operator. "Casinos have fared so well at a time when other high-yield companies - particularly telecoms - have fallen into turmoil, because most have already completed their build-out plans and are now turning profits. "…The average slot machine in an Atlantic City casino rings up profit of about $250 a day. The cash has proved so attractive in the current environment that even when companies such as Harrah's and Mandalay Bay reported earnings shortfalls in recent quarters, their bond prices barely budged. "…`Gaming companies are a good defensive play, but given the valuations in other sectors, they are not all that compelling," said Daniel Charleston, a portfolio manager at J&W Seligman & Co. "Another worry hanging over the industry is how its bonds will fare in a possible recession. …" |