Casino Operators Face Limited Near-Term Debt Maturities

Posted on: September 4, 2024, 02:35h. 

Last updated on: September 4, 2024, 03:06h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Running casinos is a capital-intensive business, which explains why so many operators carry substantial debt burdens. But the good news is that many of the largest names in the industry aren’t facing significant near-term maturities.

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The Las Vegas Strip at night. Casino operators can handle 2024 and 2025 debt maturities, according to Deutsche Bank. (Image: Getty)

In a recent report to clients, Deutsche Bank analyst Carlo Santarelli observed that 2024 and 2025 maturities among publicly traded gaming companies “are relatively limited,” adding that of the 12 casino companies the bank covers, just five have debt coming due this year or in 2025. That quintet is comprised of Gaming and Leisure Properties (NASDAQ: GLPI), Las Vegas Sands (NYSE: LVS), MGM Resorts International (NYSE: MGM), VICI Properties (NYSE: VICI), and Wynn Resorts (NASDAQ: WYNN).

Santarelli noted that MGM has $1.175 billion at a blended interest rate of 5.5% coming due next year, but his report was published before the gaming company announced Tuesday that it’s selling $850 million worth of corporate bonds maturing in 2029 to eliminate an issue that comes due in 2025.

Santarelli added that most of the debt the aforementioned quintet has coming due over the near term is at favorable interest rates, indicating the casino operators wouldn’t materially benefit from refinancing those obligations. That would remain the case even if interest rates decline significantly in the months ahead.

Lower Interest Rates Will Help Casino Debt

While some of the casino operators mentioned above don’t need to rush to refinance outstanding debt, there are benefits to be accrued in the industry from lower base rates.

We do believe the next 6-12 months will likely bring some relief to those with larger variable debt mixes. As evidenced in our analysis, a reduction in base rates will have the most notable and favorable impacts on discretionary free cash flow, based on our current 2025 discretionary free cash flow forecasts,” wrote Santarelli.

Boyd Gaming (NYSE: BYD), Caesars Entertainment (NASDAQ: CZR), Golden Entertainment (NASDAQ: GDEN), Light & Wonder (NASDAQ: LNW), Penn Entertainment (NASDAQ: PENN), Red Rock Resorts (NASDAQ: RRR), and Wynn could all experience increases of at least 3% to discretionary free cash flow if rates fall by 150 basis points throughout 2025, according to Santarelli.

At the high end of that range, Caesars would save $91.1 million in annual interest expenses if interest rates fall by 1.5%. That’s followed by Sands at $42.1 million, according to Deutsche Bank estimates. On a percentage basis of increased free cash flow assuming rates fall 150 basis points, Golden Entertainment is tops at 7.3%.

Casino Operators Facing Biggest Near-Term Maturities

Assuming no refinancing takes place over the near term, Las Vegas Sands and VICI face the largest 2025 maturities. Sands has $2.121 billion in bonds at a blended interest rate of 4.6% coming due next year while VICI has $2.050 billion at a blended interest rate of 4.2% maturing next year, according to Deutsche Bank.

VICI’s looming maturities aren’t viewed as alarming by analysts and investors because real estate investment trusts (REITs) typically carry sizable debt burdens, and in the case of the casino landlord, it recently boosted its 2024 adjusted funds from operations (AFFO) guidance.

Additionally, VICI’s contracts with gaming operator tenants are long term with gradual rent increases –two traits that provide earnings visibility.