Rating agency upbeat about casinos

Friday, Sept. 6, 2002 | 10:57 a.m.

While the country's hotel industry is slowly recovering from the effects of Sept. 11, the gaming industry has bounced back significantly, helped in part by corporate efforts to reduce debt, a new report by Standard & Poor's shows.

Earnings for major casino companies have rebounded, beating Standard & Poor's expectations, the agency said in a report issued last week.

"While Las Vegas remained behind last year, the decline in the market's performance has been more modest than originally anticipated," S&P credit analyst Craig Parmelee said.

A sluggish economy could still effect the pace of recovery in the second half of the year, though full-year results are likely to exceed expectations set early in 2002, he said.

"Outside of Las Vegas, Atlantic City continues to perform well, as the riverboat markets have remained healthy."

Earlier this year, S&P affirmed the investment-grade credit ratings for three major casino companies -- MGM MIRAGE, Park Place Entertainment Corp. and Mandalay Resort Group -- that it had placed under review for possible downgrades after Sept. 11. Also this year, S&P raised the credit rating of Reno-based International Game Technology -- the world's largest slot machine maker -- from "junk bond" status to investment grade.

"The solid operating performance of each of these gaming companies during the first half of 2002 underscores the strength of the sector during periods of limited capacity growth," Parmelee said. "Moreover, companies that remain highly leveraged for their ratings, such as MGM MIRAGE and Park Place Entertainment Corp., have continued to apply the majority of discretionary cash flow to debt reduction, underscoring their commitment to improving their balance sheets."

S&P still maintains "negative" outlooks on several Las Vegas-based gaming companies, meaning that the companies could be downgraded in the long-term. Those companies include Hard Rock Hotel, MGM MIRAGE, Park Place, Riviera Holdings Corp. and Station Casinos Inc.

Companies with "stable" outlooks are Harrah's Entertainment Inc., IGT, Mandalay Resort Group and Venetian Casino Resort LLC.

Slot machine maker Alliance Gaming Corp, though carrying a credit rating that is below investment grade, had its S&P outlook raised from "stable" to "positive" since its rebound from Sept. 11.