Fitch: Gaming Debt More Expensive But Still Favorable
NEW YORK -- June 20, 2013
The U.S. Federal Reserve's comments on monetary policy yesterday are unlikely
to revive high yield (HY) demand in the broader market and within the gaming,
lodging, and leisure (GLL) sector, according to Fitch Ratings. The Fed's June
19 clarification regarding monetary policy means that a return of the
extremely favorable HY borrowing rates that issuers experienced during the
majority of the first one-half of 2013 is unlikely in the near term.
However, rates remain at historically attractive levels so some GLL issuers
can still benefit from refinancing higher coupon debt, project funding plans
are unlikely to be materially affected, and demand for yield from investors is
likely to persist and enable attractive financing options.
The Fed indicated that continued improvement in the labor market would likely
lead to a gradual wind-down of bond buying and commented that it viewed the
economy to be expanding moderately with downside risks to the overall economy
materially improved since the fall. The fed funds rate could rise once
unemployment reaches 6.5%, which could occur in 2015 based on the Fed's
The overall tone in the broader market shifted in recent weeks as concern that
the Fed may cease its monetary easing had caused investors to re-price risk.
The HY bond market has seen a stark reversal in demand and GLL issuers in the
primary market have seen the cost of debt financing to increase during this
time. In contrast, demand has remained more resilient in the leveraged loan
market even during the recent turbulence, as investors look for protection
from rising rates.
A constant theme for 2013 has been a supply and demand imbalance in the
primary loan market. GLL has been one of the few sources of new money deals
through 2013 and we believe that should continue. Pinnacle Entertainment Inc.
recently increased its loan commitments on its deal in the primary market to
$2.86 billion from $2.73 billion and could further increase to $2.94 billion.
Please reference our GLL High Yield and Leveraged Loan Market Update, which is
a section in our Gaming, Lodging & Leisure eNewsletter
and includes current deals in market, recent and historical issuance, and
overall trends within the credit markets. The latest GLL eNewsletter was
published today and also includes highlights from our recent Asia-Pacific
gaming trip, which consisted of visits to gaming markets and meetings in
Macao, Hong Kong, the Philippines, Australia, and Vietnam.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include hyperlinks to
companies and current ratings, can be accessed at www.fitchratings.com. All
opinions expressed are those of Fitch Ratings.
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Michael Paladino, CFA, +1 212-908-9113
Kellie Geressy-Nilsen, +1 212-908-9123
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New York, NY 10004
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