Gambling Stock Roundup: MGM Resorts Takes Debt, Caesars Offers REIT Plan - Analyst Blog

The last week saw a series of strategic moves by gambling companies in order to gain a competitive advantage over their peers. Two Las Vegas-based casino companies Wynn Resorts Ltd. (WYNN) and MGM Resorts International (MGM) announced that they have taken debt for construction and development of their casinos. Meanwhile, Caesars Entertainment Corp. (CZR) announced a real estate investment trust (REIT) plan that aims at minimizing the debt pressure being faced by the company.

Per media reports and not quite surprisingly, Macau is once again set to report a significant decline in revenues for the month of November. (Read last to last week's development: Gambling Stock Round Up for Nov 17, 2014)

Recap of the Week's Important Stories:

1.    Caesars Entertainment presented a plan to its creditors to restructure the obligations of its indebted unit, Caesars Entertainment Operating Co. (CEOC). Per the plan, CEOC would be converted into a REIT which will be divided into two companies. One of the companies will own the casinos and hotels while the other one will rent and manage them.

A REIT is a corporate structure that is permitted to pay at least 90% of its taxable income in the form of dividends to shareholders, which lowers income tax liability. Therefore, we believe Caesars Entertainment is trying to capitalize on a seemingly more favorable tax environment through this move. (Read: Will Caesars Entertainment's REIT Plan Offset Debt Issue?)

2.    MGM Resorts has made a public offering of $1.15 billion of 6% senior unsecured notes due in 2023 at par. The proceeds of the offering are expected to be used for general corporate purposes, which include repayment of certain indebtedness maturing in 2015 and financing a portion of the development costs related to its Maryland and Massachusetts resort projects. Also, the company intends to invest the net proceeds in short-term interest-bearing accounts, securities or similar investments. The transaction is expected to close on Nov 25, 2014.

3.    Wynn Resorts announced that its Wynn America subsidiary has secured a line of credit worth $375 million and a loan worth $875 million to cover some of the costs, including construction of its $1.6 billion casino-resort near Boston.

In one other development, Wynn Resorts is reportedly under scrutiny by federal agencies and offices. They are trying to determine whether the casino operator has violated money laundering laws – one of the areas of concern in Macau since May 2014.

Besides working to reveal any potential evidence that Wynn has violated laws as part of its sports-betting and casino gambling operations, the Internal Revenue Service and the Drug Enforcement Administration are also working together with U.S. Attorney's offices in Manhattan and Las Vegas to find out what steps the company has taken to prevent money-laundering.

4.    After five straight months of gross gaming revenue declines, Macau is expected to once again experience a decline of 20% in November and in December, per the media reports. As evidence, Macau reported average daily revenue of 797 million Pataca for the 16 days of November, down from 850 million Pataca in October. Moreover, the second week of November was worse than the first week. Revenues in Macau had declined 23%.

This severe slowdown is the result of high-stake gamblers curtailing spending amid a cooling Chinese economy.  Also, the nationwide crackdown on corruption in China has compelled Macau officials to impose restrictions on high rollers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau.

Performance

Share prices of most of the companies declined over the last five trading sessions with Caesars Entertainment's shares falling 3%, followed by Boyd Gaming Corp. (BYD) that declined 2.3%. Meanwhile Las Vegas Sands Corp. (LVS) gained 0.4% while MGM Resorts remained stable.

Over the last six months, except for Boyd Gaming all other gambling stocks lost value with Melco Crown Entertainment Ltd. (MPEL) and Caesars Acquisition Co. (CACQ) witnessing the maximum decline of 19.6% and 18%, respectively. Boyd Gaming experienced a gain of 13.4%.

What's Next in the Gambling World?

Since no major development is expected next week, the performance of gambling stocks is not expected to change significantly.

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