Oct. 12 (Bloomberg) -- Rank Group Plc, the U.K.'s second- largest bingo and casino company, fell the most since at least 1988 in London after saying profit will probably miss forecasts, hurt by a smoking ban that drove away gamblers.

Sales at Mecca Bingo and Grosvenor Casinos had ``significant deterioration'' since indoor smoking was barred in England in July and a new law required the company to remove some gaming machines in September, Maidenhead, England-based Rank said today. Operating profit this year will be ``significantly lower than in 2006'' if there's no improvement, the company said.

The stock slid 21 percent and the risk of owning Rank debt surged. The company is investing in outdoor areas at Mecca's 103 U.K. outlets to retain bingo players, who are more likely to smoke than the rest of the population. Separately, legislation that granted the company more freedom to devise games also forced Rank to remove some higher-jackpot terminals from bingo clubs.

``Earnings could continue to weaken as casino win rates appear to be in reverse, as people spend less time at the tables in order to smoke,'' said David Pope, an analyst at Brewin Dolphin in Newcastle, England.

He also said the company is less likely to be able to sell bonds or get a takeover approach. Rank has at least 280 million pounds ($568 million) of bonds, according to Bloomberg data, and a market capitalization of 488 million pounds.

Sales fell 5 percent at Mecca and 3 percent at Grosvenor Casinos. So-called like-for-like sales, which are adjusted for club openings, closures and relocations, rose 2 percent.

`Lack of Visibility'

There's been a ``lack of visibility unprecedented in the U.K. gaming industry,'' Rank said. ``Difficulties affecting our U.K. businesses are worse than we had anticipated.''

The shares fell 34 pence, or 21 percent, to 125. Almost 52 million shares changed hands, about six times the volume on an average day in the past six months. Rank's stock has now declined about 44 percent this year.

Credit-default swaps based on Rank debt surged 110 basis points to as high as 420 basis points, according to Deutsche Bank AG. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

Revenue from units that still form part of the group fell 1 percent in the 40 weeks ended Oct. 7, helped by a 38 percent increase at the Blue Square Web betting unit, Rank said.

Mecca's revenue fell 19 percent in the five weeks since the higher-payout machines were removed. That's more than Simon Holliday of Global Betting & Gaming Consultants in West Bromwich, England said he was expecting.

Standard & Poor's rates Rank's debt as BB-, its third- highest so-called junk ranking. Moody's Investors Service gives the company an equivalent ranking of Ba3.

To contact the reporters on this story: Amy Wilson in London at awilson23@bloomberg.net. Paul Jarvis in London at pjarvis@bloomberg.net;

Last Updated: October 12, 2007 13:24 EDT