Sunday, March 08, 2009

Las Vegas: Lady Luck has run out

As more Americans fret about the security of their job and the plummeting value of homes and retirement nest eggs, consumer discretionary squander - unnecessary spending to enjoy the "here and now" - is taking a back seat to paying off debt and stuffing money under a mattress.

This new American paradigm shift towards "thriftiness" is wreaking havoc on the City of Sin, as many of the debt-laden companies who were dependant on this squander are now having problems making their projected debt/income models work and thus: finding lenders who are willing to gamble on refinancing this debt.

As Frank Sinatra once sang in Luck Be A Lady:
"They call you lady luck, but there is room for doubt, at times you have a very un-lady-like way of running out..."

Well, not only has Lady Luck run out for Las Vegas, but she may have left it with an incurable STD - Sentence To Death:

MGM Mirage May Breach Debt Covenants and Default in 2009

March 3 (Bloomberg) -- Gambling revenue in Las Vegas, the biggest betting center in the U.S., fell the most on record last year, causing declining sales at MGM Mirage, the owner of 10 casino resorts in the city. MGM Mirage said last week it had borrowed the remaining $842 million in its revolving credit facility.

MGM Mirage, the casino company majority-owned by billionaire Kirk Kerkorian, said it may not be able to stay in compliance with financial covenants under its senior credit facility this year.

Failure to comply would mean defaulting under debt agreements, MGM Mirage said today in a U.S. regulatory filing. The Las Vegas-based company also postponed filing its fourth- quarter and annual report until as late as March 17.

CITYCENTER PROJECT: MGM in hunt for financing after talks collapse

It's back to square one for MGM Mirage.

After discussions with Deutsche Bank collapsed late Wednesday, the cash-strapped casino operator will have to look elsewhere for the final $1.2 billion in financing needed to complete its $9.1 billion CityCenter development.

The news, coupled with MGM Mirage's announcement Tuesday that it could default on its $7 billion senior secured credit facility and be labeled a "going concern" by its independent accountants, didn't sit well with Wall Street. Speculation about the financial health of the Strip's largest casino operator widened.

Deutsche Bank reportedly wanted MGM Mirage to operate or take an ownership stake in the unfinished $3.9 billion Cosmopolitan project, which is being built on an 8.5-acre site between CityCenter and Bellagio.

Deutsche Bank, which acquired the Cosmopolitan for $1 billion at a foreclosure sale, has been seeking an operator for the project. A spokesman for Deutsche Bank declined comment.

The company said a default on its credit line could lead to a default on its entire $13.5 billion debt load. MGM Mirage delayed its year-end earnings report until March 17 and is negotiating with its lenders to seek better repayment terms. Some analysts believe the company could be forced into bankruptcy to restructure its debt. Others believe the company has many options to pursue.

Shares of MGM Mirage sank to never-before-seen lows Thursday. The price per share closed at $1.89 on the New York Stock Exchange, down 32 cents or 14.48 percent.

Moody's downgrades Harrah's 2 notches

Moody's Investor Service on Wednesday cut its rating on casino operator Harrah's Entertainment Inc. by two notches, citing the persistent declines in gambling amid the recession.

Harrah's probability of default rating and corporate family rating, already at junk bond status of "Caa1," were lowered further to "Caa3."

Analyst predicts Harrah's will land in bankruptcy court this year

A bond analyst said Thursday she doubts Harrah's Entertainment's latest debt swap offer will be successful and predicted the gaming company could end up in bankruptcy court before the year is out.

"We think this latest restructuring is an attempt to rearrange the deck chairs on the Titanic," Barbara Cappaert, a bond analyst with KDP Investment Advisors, said. "The company will very likely throw in the towel and reduce debt via a debt/equity restructuring (or bankruptcy) later this year to streamline its balance sheet."

Riviera parent, lender at odds over accounts

Riviera Holdings Corp. moved a step closer to financial upheaval Wednesday because of a dispute with its lender over who will control the company's bank accounts.

Riviera Holdings Corp. received a notice of technical default from Wachovia Bank on $245 million in bank loans after the company refused to enter a deal under terms set by the bank, a filing Wednesday with the Securities and Exchange Commission shows.

The deal, called a deposit account control agreement, would have given Wachovia access to all of the cash in Riviera's bank accounts should the company issue a notice of default to the bank. The bank wants to protect its position by having Riviera Holdings deposit its cash flow into a bank-controlled account before using it for operating expenses.

Sands CEO aims to avoid debt default

NEW YORK (Reuters) - Casino operator Las Vegas Sands expects to avoid a debt default through a combination of cost cuts, the sale of two retail malls and increased business in Macau, Chairman and Chief Executive Sheldon Adelson said on Tuesday. (Note: 75 year old Adelson has recently pumped over $1 billion of his own money into Sands to avoid default - link)

Without those actions, Sands, which operates the Palazzo and Venetian resorts on the Las Vegas Strip and has two casinos in the Chinese gambling enclave of Macau, could be in danger of violating loan covenants toward the end of the year, he said at the Reuters Travel and Leisure Summit in New York.

Wynn Resorts Cuts salaries, hours and 401k matching

Casino operator Wynn Resorts Inc said on Tuesday it would cut the wages of its salaried workers in Las Vegas and reduce work weeks for its full-time hourly employees to avoid cutting jobs.

Competitors like MGM Mirage, Las Vegas Sands Corp and Harrah's Entertainment have been laying off workers as recession-weary consumers and businesses cut back on extras like travel and gambling.

Wynn, which recently opened a second casino on the Las Vegas Strip (The Encore), said it would eliminate 2009 bonuses and suspend its program of matching 401-K retirement plan contributions.

Successful short seller has eyes for Wynn

A researcher and investor who foresaw the banking crisis, the residential and commercial real estate crashes and the downfall of General Growth Properties has set his sights on stock in Wynn Resorts Ltd. as a short-sell candidate.

Reggie Middleton, a Brooklyn-based investor who was months ahead of most analysts on numerous market-related events in the past two years, says in a nine-page report that Wynn Resorts stock is overvalued by about 26 to 65 percent.

Stratosphere, Arizona Charlie's undergo cutbacks
The company that operates the Stratosphere, the two Arizona Charlie’s casinos, and the Aquarius in Laughlin, laid off an undetermined number of workers this week and undertook several other cost-cutting measures.

American Casino & Entertainment Properties said Wednesday the cutbacks were due to “economic conditions.” A spokesman said the company wouldn’t go into details as to how many employees were impacted by the moves.

The company said it was also suspending its 401(k) match program, effective April 5, and salary increases scheduled for July were also suspended.

“The current economic conditions affecting Las Vegas and the gaming industry have made it necessary for ACEP to adjust staffing levels and expenses to reflect the business demand we are experiencing,” company CEO Frank Riolo said in a statement. “We held out as long as possible. Our goal is that the expense reductions will help us to maintain as many jobs as possible as we move forward.”

The cutbacks impacted all four of the company’s hotel-casinos.

Riviera Gets Technical Default Notice On Credit Line

Las Vegas casino operator Riviera Holdings Corp. (RIV) said it has received notice of technical default from Wachovia Bank on a $245 million credit line after the company refused to enter a deal in the form requested by the bank.

Riviera's shares were recently down 19% at $1.81. The stock is off more than 85% the last six months.

The company's credit pact provides that Riviera enter into a deposit account control agreement with Wachovia Bank, a unit of Wells Fargo & Co. (WFC), from time to time. In October, Wachovia requested that Riviera enter an agreement that Riviera said contained unreasonable terms.

The company has been struggling amid the downturn of Las Vegas gambling revenue and being overshadowed by other larger, glitzier resorts on the Strip. Ratings agencies in recent months have raised increased concerns about its liquidity and ability to service junk-rated debt.

Station Casinos struggling to survive

Station Casinos announced it has entered into forebearance agreements, giving its bondholders extra time to make a decision regarding a restructuring deal. The company has now decided to extend its voting deadline to April 10.

Station Casinos has also declined Boyd Gaming's offer to purchase the corporation's casino properties for $950 million.

The Station Casinos empire has been built on borrowed money - billions of it. And, like a homeowner that suddenly has trouble paying bills and faces the prospect of foreclosure, the owners of Station Casinos have been looking for a way out of their financial bind.


Many regular readers of this blog know that I've been anticipating/forecasting this Las Vegas downturn since 2006 and though the situation seems quite dire today, I don't think the worst is over, and feel there will be much, much more pain in the months/years ahead.

Yes, Lady Luck was good to Las Vegas for quite some time, but her charm and the luck she once brought to this city has finally run out.

A few of my links to other Las Vegas economic related issues:

Las Vegas Housing Crash Continues

The Las Vegas gravy train has ended

It's started - the new Las Vegas migration trend

Weakening Pulse of Las Vegas's Economy



Anonymous said...

When I was growing up here in Vegas, I used to go with my cousin not too far out beyond Rainbow on Charleston, and I'd shoot at jackrabbits and plink empty bottles with a .22 rifle. Now, of course, that area is all full of houses and minimalls. Wouldn't it be an irony (a sad one) if, given ten (five?) years that I'll be able to do that again, as all the houses and buildings out there will have been abandoned.

Anonymous said...

I am 60 years old and a casual observer of news and events taking place across this country and the globe. I am a little familiar with the evolution of Vegas that took place over the years as I worked in the trade show industry for a quarter century and worked in Vegas on many occasions supervising exhibit set up operations for my clients. I have followed this blog and many others related to real estate, land use issues and enviromental concerns and from where I sit, Las Vegas is on the road to ruin and in the not too distant future will become the site of the world's largest salvage operation. It has out lived it's usefullness and is using up resources that could be put to much better use elsewhere, i.e. water for one. Everything has to be brought in from some place else. Las Vegas does not produce a thing and never has except the occasional high or low associated with the casino environment. It is time to move on.

Anonymous said...

So...does Vegas go Lord of the Flies faster than did New Orleans after Katrina?

It is an island of sorts, easily cut off from basic commodities if the cost of transportation of those commodities from elsewhere to Southern Nevada becomes prohibitive.

Not like you can grow much of your own food there.


jerry said...

How much would Nevada save in energy costs if LV turned off the lights for one hour per day?

Anonymous said...

I love checking this site as a barometer of American and international high roller spending habits. I'm not a "Vegas Hater", but you have to admit, it's core economy and image is built to be an adult playground. Actually, I'm a Vegas Lover, I just prefer the old downtown, tacky area when there were giant replicas of cards in a royal flush in the pavement and the in your face gaudiness of it all! That was fun stuff! What's a Belaggio anyway? Ain't no Nevada I know! You used to be able to go into Bob Stupak's Vegas World or Binion's Horseshoe with a million dollars and bet it on a single hand of blackjack, the house would honor the bet, but not at any of the corporate clubs on the strip...wimps, tourist junk. Too bad, I used to work for Harrah's South Tahoe when Bill Harrah and Harvey Gross were still alive, it was mo' bettah then too, now there's a cheap timeshare saleschump bustin your balls just past the front door on the main casino floor! It's gone to hell anyway corporate clubs are for MTV fans.

bart said...

Have the casino,s put odds on their own survival?

J. Louise said...

I love this blog--I lived in Vegas and moved away in 2004 to take care of a family member. I want to move back someday when I don't have family obligations, but I don't know if there will be a Las Vegas to move back to!

PLEASE keep these great, insightful articles coming.


It does look like luch has run out on las vegas.