Report: Debt may hamper refinancing for gaming companies

Things are looking better for Las Vegas these days -- visitor numbers, gaming revenues and profits are on the rise after years of brutal recession.

But there's trouble looming on the far side of the globe. At a time when major gaming companies have taken on an unprecedented level of debt, sovereign financial problems in Europe threaten to dramatically drive up the cost of money -- a hard break for companies still weak from the economic slowdown.

Caesars Entertainment Operating Co. Inc. and CityCenter Holdings LLC in particular could face challenges refinancing their debt, according to a new report by Moody's Investors Service. Those companies are among a couple of dozen nonfinancial companies in the U.S. that have amassed about $668 billion in corporate debt that will mature in the next five years.

Both companies' debt carries a negative (Caa2) rating from Moody's.

While Caesars and CityCenter were the only two companies mentioned by Moody's, the gaming industry itself is in an unprecedented financial position.

All Nevada casinos have taken on about $50 billion in debt over the last 30 years. Not a healthy statistic for an industry that faces investor uncertainty despite better gaming and visitor numbers in recent months.

The debt carried by Nevada gaming companies is at a record high, having risen from about $2.7 billion in 1984 to $51.2 billion in the fiscal year that ended in June.

But with revenue growth topping out at $22 million over the same period, casinos owe more than they collectively earn each year, according to a recent analysis of state figures by the Center for Gaming Research at the University of Nevada, Las Vegas.

From 1984 to 2011, casino revenues grew by 363.63 percent -- as total liabilities grew by 1,708.04 percent, according to the study by David G. Schwartz, the center's director.

This imbalance has been an issue for analysts and industry observers for several years, stemming from the large amount of corporate debt issued in the credit boom years leading up to early 2008. But low interest rates have allowed most companies to refinance pending maturities with newer, longer-dated bonds.

Moody's said companies rated B3 negative or lower and needing to refinance could also be hurt by banks in Europe and the U.S. pulling back from speculative lending.

The largest debt issuers in this category are some that got stuck at the height of the credit boom, including Caesars Entertainment and CityCenter Holdings, according to the rating agency.

Both Las Vegas-based companies made the top-25 list of low-rated U.S. nonfinancial companies with $79 billion, or 12 percent of the total debt, maturing by 2016.

Caesars Entertainment has more than $7.6 billion in debt maturing in 2014, 2015 and 2016. CityCenter has $900 million in debt maturing in 2016.

"We believe many of these companies will face challenges refinancing their debt," said Kevin Cassidy, a senior credit officer and co-author of the Moody's report. "Especially if their capital structures are untenable and if business fundamentals do not improve."

Caesars Entertainment was ranked third on the list of the largest B3 negative or lower companies. The gaming company on Thursday told regulators saying it is trying to extend up to $4 billion in term loans from January 2015 to January 2018.

MGM Resorts International, which owns CityCenter, is asking its lenders to extend $3.5 billion of bank credit for a year to Feb. 23, 2015, and "will give them a paydown for the extension plus lower fees," Kim Noland, director of high-yield research at bond research firm Gimme Credit, said in a report.

MGM Resorts was not on Moody's list.

Clear Channel Communications, which owns and operates radio stations nationwide, topped the Moody's list with $16 billion of debt due beginning later this year through 2016. Texas Competitive Electric Holdings, a power company, was second with $11 billion.

"While most companies should be able to refinance their upcoming maturities assuming the normal functioning of the credit markets," Cassidy said, "some lower-rated companies could struggle amid macroeconomic uncertainty, the sovereign-debt crisis in Europe and potentially higher interest rates in a couple of years."

Cassidy said Europe's sovereign-debt uncertainties pose the biggest risk.

Maturities for speculative-grade companies are back-end-weighted over the next five years, with $27 billion due this year, $67 billion due in 2013, $168 billion due in 2014 and $161 billion due in 2015.

Maturities in 2016 of $246 billion represent close to 40 percent of the total.

"However, we believe some speculative-grade bank credit facility maturities will be 'pulled-forward' sharply increasing near-term refunding needs," said Tina Siilaberg , a Moody's analyst and co-author of the Moody's report. "The maturity of bank facilities in 2012 and 2013 could triple to $166 billion from $52 billion."

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893.of