S&P's fundamental outlook on the gaming industry is negative, as big players like MGM Mirage and Las Vegas Sands grapple with economic weakness and heavy debt
From Standard & Poor's Equity Research
Though the private equity boom in the sector led to significantly higher valuations, we see high debt loads compounding difficulties from economic weakness. Debt-to-EBITDA ratios for casino/gaming companies that file public financial information with the Securities & Exchange Commission rose to 7.5 in the 12 months ended June 30, 2008 from 4.5 in 2002, according to Standard & Poor's Credit Market Services, which operates independently of Standard & Poor's Equity Research Services.
With cash flows declining, debt-burdened properties need to keep occupancies high and at the same time cut costs to remain in compliance with debt covenants. However, deteriorating service levels could make that difficult, and we expect price discounting to intensify. We expect lodging revenue per available room, or RevPAR, declines of 5% to 8% in 2009, but we see those of casino hotel rooms falling more. (See Complete Story)