An extended closing of Atlantic City casinos because of Hurricane Sandy may lead to ratings cuts for firms including Caesars Entertainment Corp. (CZR) and Revel AC Inc., Moody’s Investors Service said in a note yesterday.
Revel and Borgata casino owner Marina District Finance Co. are the most vulnerable since each has a single asset, its Atlantic City casino, Moody’s said. Revel was downgraded to Caa2 from Caa1 in August with sales and earnings at the Revel Resort, opened in May, already at a “significant” discount to what the ratings firm “believed was necessary” to service its debt.
Marina District Finance, rated B2, may have to seek a covenant amendment or waiver to avoid breaching a minimum cash flow requirement in its bank-loan agreement, Moody’s said.
Caesars, whose $1.36 billion of annual casino wins represents 43 percent of the Atlantic City total, gets 20 percent of its sales there. A temporarily loss of revenue from the New Jersey gambling center could make it difficult for the Caa1 rated company to improve its leverage and interest-coverage metrics, Moody’s said.
“Right out of the box, it doesn’t impact Caesars,” Peggy Holloway, Moody’s senior credit officer said in a telephone interview. “It would be more of another hit that they would potentially have to absorb.”
Casinos in Atlantic City, the second-largest U.S. gaming site behind Las Vegas, closed the night of Oct. 28, a day before Hurricane Sandy, the largest tropical storm system on record, hit New Jersey. While the Casino Association of New Jersey said damage to the casinos was minor and they could open as early as tomorrow, regional destruction will affect customers’ discretionary spending and ability to travel, potentially limiting revenue, according to Bloomberg Casino and Gaming Analysts Tim Craighead and Brian Miller.
High-yield, high-risk, or junk, debt is rated below Baa3 by Moody’s and BBB- at Standard & Poor’s. Issuers rated in the Caa category by Moody’s “are subject to very high credit risk.’
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