As the current economic downturn continues to bedevil companies worldwide, the previously thought “recession proof” industry of casino gaming has also been affected. The CEO of Las Vegas Sands Corporation, Sheldon Anderson, recently put $1 billion of his own funds into the organization that owns the Venetian in Las Vegas and suspended building projects at many of their locations. Demonstrating that they could be hurting as well, Harrah’s yesterday announced their own deal that will relieve them of immediate debt by delaying it well into the next decade.
After their third quarter financial report filed last month stated a $129.7 million net loss – versus a net profit of $244.4 million a year earlier – Harrah’s decided to relieve some of their immediate debt through the refinancing of bonds that were due within the next couple of years. On November 14th, Harrah’s moved forward with these plans by offering to privately exchange the existing short term debt for debt with a later exchange time and rate. On December 1st, approximately $4 billion of the private company’s debt – representing 36% of that total – had been exchanged by holders of outstanding notes.
Harrah’s is offering to exchange debt maturing between 2010 and 2013 for new notes due 2015, which pay a coupon of 10%, and bonds maturing between 2015 and 2018 for new notes due 2018, also paying a 10% coupon. Currently Harrah’s cash balances are near $1 billion and it has about $1.5 billion of revolver availability, and the exchange is expected to save about $70 million annually on interest expenses for the company.
2008 has witnessed a downturn in not only the Las Vegas economy but also the gaming community. The Las Vegas Convention & Visitors Authority reported that, for the month of September, convention attendance dropped 10% to 357,525 from 397,348 in the same period last year. There has also been significant decline in many of the stalwarts of the Las Vegas Strip and other properties in the city.
Besides the Las Vegas Sands Corporation’s problems, Boyd Gaming and MGM Mirage didn’t fare very well in the third quarter either. Revenues for Boyd Gaming, the company that owns the Orleans, the Gold Coast and Sam’s Town, dipped to $426.5 million – a 13% decrease compared with $490.1 million in the same period last year. Third-quarter net income dropped to $8.7 million, 73% less than the $31.9 million made on the same period last year. MGM Mirage’s third quarter reports showed a net income decrease of 67%, as MGM made $61.3 million instead of the $183.8 million earned in the same period last year. Revenues also fell 6% to $1.95 billion from $2.07 billion in the same period of 2007.
With many economic forecasters not expecting a recovery in the economy until possibly as late as 2010, Harrah’s move is one that will give them a solid base to potentially outlast the current economic downturn. Unless recovery comes sooner than expected, the economic situation of the world’s largest gaming corporations could continue to slide, placing a heavy burden on these companies to survive and making it very difficult for the Las Vegas economy to weather the storm.
