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Study: War Financial Impact on Casinos Overestimated

"A study from Deutsche Bank also found that, while the overall impact of hostilities on gaming companies should be less than expected, it should also be less than the impact on the leisure travel and lodging industries in general.

"`Because the casino industry is geographically diversified and primarily serves the leisure (travel) customer, it's negative impact from current economic pressure, primarily (felt in) business travel, has been minimal,' Deutsche Bank analyst Andrew Zarnett said. `Thus, to date, their leverage has been very modest compared with the lodging industry overall, which is experiencing (more severe debt service problems).'

"…As a company's revenues shrink, in this case because of depressed travel, it becomes more leveraged and can find it more difficult to service its debt, hobbling its ability to raise capital and depressing investor interest in its stocks and bonds.

"…In worst-case scenarios analyzed by Deutsche Bank, a 50 percent downturn in cash flow for Las Vegas casinos would increase the leverage of company bonds from 12.5 percent for Harrah's to 60 percent for Mandalay Resorts.

"`Clearly, the negative impact on MGM Mirage and Mandalay Resort Group will be more than Harrah's Entertainment and Park Place Entertainment, as MGM and Mandalay have significantly greater (cash flow) exposure to Las Vegas,' he said.

"…For MGM Mirage, its higher-end properties and more upscale customers may mean the company can pull deeper from its database, driving visitation from customers who may often want to stay at those properties, he said.

"…In short, casino companies should remain relatively good investment opportunities compared with other, even related, industries, he said…"

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