Gaming analysts and investors say there is room for further tightening on bonds of gaming companies that depend on air travel for a large percentage of their clientele, chiefly those operating in Las Vegas. Many had thought that the casinos would suffer as a result of decreased air traffic into Las Vegas (BW, 9/24). Though the whole gaming sector sold off immediately after Sept. 11, Vegas credits were particularly hard hit, trading down by as much as 15 to 20 points. They have since come back, but as of last week were still well short of their August highs. MGM Mirage's 9.75% senior subordinated notes of '07 (Ba1/BB+), which traders see as a benchmark Vegas name, were up to a 101 bid--well off its August level of 109, but much improved from a post-attack low of 90.
Ashley Craig, an analyst at Morgan Stanley, says investors sold aggressively at first because they did not know what the impact of the attacks would be on the industry. She believes that as they gain confidence that customers are coming back to the tables, the bonds will trade still closer to where they were before the attacks.
Eric Green, portfolio manager at Penn Capital Management, says the firm recently bought "a ton" of gaming bonds in Vegas names such as MGM and Park Place Entertainment. Though Penn got in ahead of last week's levels, Green still sees plenty of upside. He believes MGM in particular could recover further, noting that the company has $1 billion in cash flow. He says that Penn Capital will probably sell the bonds if they return to their August levels.
Not all buy-siders are high on the sector. Tom O'Reilly, portfolio manager at Lincoln Capital Management in Chicago, argues that it will be some time before the Vegas credits return to their August highs. He notes that occupancy is still low during the week, and though weekend bookings are back to normal, room rates have been reduced. He believes a weak economy, in addition to the fear of air travel, will continue to hurt the industry for at least several months.