Casino Operators Find Receptive Credit Markets For Deals By A.D. Pruitt Of Dow Jones Newswires
NEW YORK (Dow Jones)--Credit markets are reopening for major casino operators with investors hungrier for risk as their fears of economic Armageddon subside.
But it's coming at a price. Gaming companies with sub-par ratings are having to put up some of their prized casinos as collateral, while paying hefty rates to pique investor interest. Nevertheless, it's providing these companies with much-needed funds to whittle down debt in a capital-starved market.
Ameristar Casinos, Inc. (ASCA) Wednesday announced that it completed private offerings of $650 million of senior unsecured notes due 2014, while Harrah's Entertainment began marketing $1 billion in eight-year notes secured by the company's casinos. MGM Mirage (MGM) recently sold $1.5 billion in notes backed by a first-priority lien on all the assets of the Bellagio Hotel and Casino and the Mirage in Las Vegas.
"For Harrah's to be able to issue means there's appetite for the riskiest names in the gaming sector," said Chris Snow, a gambling analyst at CreditSights, noting the company's debt is rated in deep junk territory.
The casinos have "structured these deals in ways that the bondholders feel better protected," he said, noting the secured deals carried hefty yields.
"MGM Mirage and Harrah's wouldn't have received strong investor interest if they didn't have their casinos backing the issuance," Snow said.
He said it's normal for high-yield companies to issue collateralized debt. But, secured deals are becoming more of a trend for casinos companies as MGM Mirage hadn't used their casinos as collateral in past bond deals.
MGM Mirage said it will repay $825.6 million in debt under its senior credit facility after it sold the notes and $1.15 billion in stock. The company is struggling to pay down more than $14 billion in debt and was until recently facing a threat of bankruptcy.
Harrah's, which has struggled with its debt covenants and has conducted two distressed debt exchange offers since last December, said the proceeds from the note sale will retire a portion of an existing term loan and revolving credit indebtedness.
The new gaming bonds come as the broader high-yield debt market shows renewed life and amid hopes that casino industry has seen the worst of a brutal economic downturn.
"It's an easier time to get a secured deal done, certainly for the more distressed operators," said Michael Paladino, senior director of gaming at Fitch Ratings.
He said Ameristar, which has seen its stock skyrocket rise 127% since the beginning of the year, successfully issued unsecured debt because its credit profile is stronger. In addition, its capital structure prior to the deal was primarily bank debt.
"They don't have the type of exposure to the more volatile (markets)" compared with the mega casino operators operating in Las Vegas and Macau, Paladino added.
Indeed, regional casinos in America's heartland have stabilized because they aren't as vulnerable to the weakness in nongaming areas such as lodging, fine dining and air travel.
-By A.D. Pruitt, Dow Jones Newswires; 201-938-2269; firstname.lastname@example.org
(John Kell and Michael Aneiro contributed to this report)
If you believe the one more fact, you'll never own your own home. Read the terms of the new debt offering - onerous terms given the distressed nature of the business and company. Who bought this debt anyway and why? Are they looking to eventually take over Ameristar's assets via assuming the secured debt in the event of default and wipe out current shareholders? The new $650 debt offering is exempt from registration and sold overseas. Can anyone say pig in a poke, black box or just trust me.