Question of the Day November 25, 2014
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Q:Now that it appears Caesars is heading into bankruptcy, how is the financial health of the other big players, MGM Mirage, Wynn and Las Vegas Sands?
A:When it comes to Wynn Resorts and Las Vegas Sands, "they’re almost polar opposites [to CET]from a balance-sheet perspective," says Union Gaming Group analyst Chris Jones, and "far better than Caesars," which has a heavy exposure to Atlantic City, isn’t in the "hot spots" in Las Vegas, and totally lacks a presence in China.
As indebted as Wynn and Sands are (according to Capital IQ, Wynn carries $7.3 billion in long-term debt, Sands $9.9 billion), their Macao foothold allows them "to de-leverage at an accelerated rate," says Jones. Despite an anti-corruption drive that has depressed the gambling market over there, "Macao is still driving accelerated cash flow at this point," and Jones feels the effects of that anti-corruption drive will be cyclical rather than permanent.
As for long-term debt, it may be a lot of money but – as a multiple of each company’s cash flow – it’s 1.4X for Wynn and 2.4X for Sands. By comparison, Caesars Entertainment’s debt-to-cash-flow ratio is 12.9-to-one. "That probably says it all right there," says Jones, citing more Capital IQ data.
Although MGM Resorts International is carrying $13.5 billion in long-term debt, "we have MGM at a positive," says Fitch Ratings analyst Alex Bumazhny. We’ve migrated it up to B+, which is in the mid-range for gaming companies." Bumazhny allows that he’s "a little bit concerned" about the debt, which MGM recently increased by issuing over $1 billion in notes to finance its Springfield, Massachusetts, casino project. The debt-to-cash-flow ratio is 7:1 but "there’s a lot of top-tier equity [in the company] and their maturities are pretty stretched out," Bumazhny says.
"They have a pretty full pipeline," with $5 billion in projects in Massachusetts, Maryland and Macao. "That’s why we’re not ready to pull the trigger on the double-B category" of bond rating, Bumazhny explains. "We’re pretty optimistic in the long term," he adds, although the company needs to raise another half-billion to get it through the next two years. "This should be manageable given MGM's improving financial profile and historically good access to capital markets, as well as Fitch [sic] favorable long-term outlook for the Las Vegas Strip and Macau," reveals a Fitch Ratings investor note.