Standard & Poor's '07 Outlook - Hotel & Gaming sector

12.11.06

Part 2:
What Will '07 Bring for Key Sectors?

S&P Ratings sizes up prospects for industry groups in the coming year. Part 2 includes a look at media & entertainment, oil & gas, and retailers

Hotel & Gaming: Growth Will Moderate
Standard & Poor's expects solid lodging industry performance again in 207, with revenue per available room (RevPAR) in the U.S. likely to grow in the mid-single-digits. S&P does, however, expect a decline in the rate of RevPAR growth from about 8% in each of the last three years. With still-record-high occupancy levels across all price segments, pricing power in the industry remains strong, mitigating any concern about a meaningful slowdown in 2007. Given prospects for continued strength in global lodging markets, Standard & Poor's would expect an upward bias again in 2007 for ratings, in the absence of debt-financed acquisitions, including those that take companies private.

For the U.S. gaming industry, S&P expects revenue growth to moderate further in 2007, reflecting a continued gadual slowing of the U.S. economy. Despite an anticipated modest decline in consumer discretionary spending, industry revenues are still expected to expand overall. From a ratings perspective, S&P does not expect overall credit quality in the sector to materially deteriorate in coming periods despite aggressive expansion plans by many industry participants. However S&P lowered the rating on Harrah's Entertainment (HET) to below investment grade on the news that it received an offer to be acquired by private equity investors.

Still, with most companies in the gaming industry carrying stable or positive outlooks, any weakness in credit quality will most likely be reflected by outlook revisions rather than rating changes. Further debt-funded transactions, however, could prompt more downgrades. (Full Story)

http://www.businessweek.com/investor/content/dec2006/pi20061208_407157.htm