Las Vegas is global gaming market’s bright spot – Fitch

TAGs: fitch ratings, Las Vegas, Leonard Postrado, Macau, Melco Crown Entertainment, Studio City

Las VegasLas Vegas is global gaming market’s bright spot - Fitch continues to lead the global gaming market, outpacing both the U.S. regional gaming markets and Macau.

In its latest global report on the casino industry, credit debt watcher Fitch Ratings Inc., has dubbed the Las Vegas Strip as a “bright spot” in a gloomy global gaming backdrop.

Despite the weakness of its baccarat and exposure to Asian gaming, Las Vegas’ overall gaming revenues on the strip was just down by 0.6% year-to-date.

“The Las Vegas Strip continues to be the blue chip among global gaming markets,” Alex Bumazhny, Senior Director, U.S. Corporates, said in his report All In: The Global Gaming Handbook. “Without any major new supply coming to the Strip through at least 2019, Strip operators will be able to take advantage of increased convention attendance, airline capacity and domestic gaming to drive RevPAR growth.”

Bolstering Las Vegas’ economic luster is the openings of the $4 billion Resorts World Las Vegas and Crown’s Alon Las Vegas, which, according to Fitch, will help reinvigorate the Strip and end the nine year dry spell since the Cosmopolitan opened in 2010.

Fitch, on other hand, noted that Macau’s gaming revenues have bottomed after a 44% cumulative decline since the peak reached in mid-2014. It expects Asia’s premier gaming hub to chalk a mid-single digit growth by next year.

As for the U.S. regional gaming markets, Fitch pointed out that individual markets are becoming more differentiated. As the Northeast ramped up, the Midwest passed its saturation point and low oil prices put a damper on the southern markets.

The credit debt watcher, however, warned that these markets may face long-term headwinds from a proliferation of gambling alternatives and uncertain retirement prospects for baby boomers despite encouraging economic indicators.


Studio City likely to fail first leverage tests: Fitch

Citing its current operational performance, Fitch warned that Macau casino resort Studio is “likely to fail” its first financial tests concerning its borrowings relative to its earnings.

“Studio City has up to two equity cures but the cures are capped at 30 percent of EBITDA or cash flow needed [in order] to be in compliance with the respective covenant (about US$70 million for the first total leverage test), which may not be enough.” Bumazhny said, referring to the ability of Studio City’s promoters to inject fresh equity into the project. “While there are many plausible scenarios, Fitch believes the more likely outcome is MPEL increasing its stake in Studio City. New Cotai [LLC], a 40 percent equity owner in Studio City with US$628 million of debt outstanding, is unlikely to contribute pro rata equity to bail out Studio City. In an event of a default at either New Cotai or Studio City, MPEL would be a logical, strategic bidder for the equity issued to the creditors in question. Studio City’s performance would likely be optimised if it were wholly owned by MPEL due to the greater flexibility in marketing and table allocation.”


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