Atlantic City Casino Borgata Bonds Fall as Resorts Stay Closed

Bonds of Borgata Hotel Casino & Spa, owned by MGM Resorts International and Boyd Gaming Corp., fell the most in more than nine months as damage from Hurricane Sandy keeps the second-largest U.S. gaming site closed.

The casino’s $393.5 million of 9.875 percent notes due August 2018 have fallen 2.25 cents on the dollar since the largest tropical storm in the Atlantic slammed the East Coast on Oct. 29. The securities traded at 99.5 cents to yield 9.98 percent at 2:27 p.m. in New York, the biggest decline since Jan. 25. The company’s $394.4 million of 9.5 percent secured notes due October 2015 have dropped 2.4 cents to trade at 100.1 cents on the dollar with a 9.47 percent yield since the storm.

Borgata, owned by the Marina District Finance Co. joint venture, had third-quarter revenue of $187.1 million, compared with $202 million in the similar period last year, according to Boyd Gaming, which announced the results in a statement with its own earnings. Adjusted earnings before interest, taxes, depreciation and amortization was $33.4 million, down from $50.3 million in the same period a year ago.

“This was a lot lower than we thought,” said Susan Berliner, an analyst at JPMorgan & Co. She said in a telephone interview that she was “shocked” because the company had provided guidance of $47 million to $49 million. JPMorgan estimated $42 million, she said. “The monthly numbers appeared to be holding up OK, so that’s why it was pretty surprising.”

Storm Recovery

Atlantic City, which is second only to Las Vegas in gambling revenue, sustained limited damage, compared with other New Jersey Shore areas. Casinos may report lower revenue because of damage to roadways and the loss of regular customers, who may be preoccupied with a storm recovery, according to Fitch Ratings.

“The bigger question for the industry remains the status of roadways and other infrastructure in the Atlantic City and feeder areas,” Fitch analysts Michael Paladino and Bill Warlick wrote in a report today. That “may limit the ability of casino employees and customers to get to Atlantic City’s 12 gaming properties easily.”

Casinos in Atlantic City have been closed since the night of Oct. 28, a day before Hurricane Sandy hit the state. Damage to the resorts is minor, according to the Casino Association of New Jersey.

The impact from Hurricane Sandy may force Marina District Finance, whose only asset is the Borgata, to seek a covenant amendment to avoid breaching a minimum cash flow requirement in its bank-loan agreement, according to Moody’s Investors Service.

“Because it’s a single property, they would be at risk, especially given the covenant situation,” Peggy Holloway, senior credit officer at Moody’s, said in a telephone interview.

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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