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U.S. Casinos Risk Default After Stabilization, Moody’s Says

An economic recovery “may not be enough to stave off looming credit troubles” at many U.S. casino companies, including those that have restructured their debts, Moody’s Investors Service Inc. said.

Isle of Capri Casinos Inc., Pinnacle Entertainment Inc., Mohegan Tribal Gaming Authority, Boyd Gaming Corp., Harrah’s Entertainment Inc., MGM Resorts International and CCM Merger Inc. “need overall business conditions to improve, not just stabilize,” to generate sufficient cash flows to refinance debt “on less-than-onerous terms,” Keith Foley, a Moody’s analyst in New York, said in a report yesterday.

Las Vegas Sands Corp. and Wynn Resorts Ltd., which generate most earnings in Asia, are “less affected,” Foley said.

Severe declines are nearing an end, he said, after a record two-year drop in gambling revenue threatened many casinos with insolvency and bankrupted others, forcing the restructuring of billions in debt. A slow recovery leaves many weakened operators vulnerable to higher interest and tax rates, as well as intensifying competition, according to the ratings company.

Moody’s analysts including Foley said in July 2008 that casinos showed “warning signs” of many troubles that followed.

Of the 44 casino-debt issuers Moody’s rates, 36 are five or more levels below investment grade, and 16 of those have a negative outlook or are on review for a possible ratings drop, the report said.

“With few exceptions, U.S. gaming companies do not have the financial flexibility at this time to absorb a year or more of flat profits,” Foley said. “Without an equity infusion and/or other deleveraging event, these companies may find it difficult to address their large debt loads and/or refinance their expiring liquidity facilities on favorable terms.”

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