Bloodbath: Gaming stocks fall to recessionary price levels a day after U.S. casino industry is shuttered

Bloodbath: Gaming stocks fall to recessionary price levels a day after U.S. casino industry is shuttered

  • Howard Stutz, CDC Gaming Reports
March 19, 2020 11:28 AM
  • Howard Stutz, CDC Gaming Reports
  • Other

If Wednesday wasn’t rock bottom for the U.S. gaming industry, then it was pretty close.

Publicly traded casino companies and equipment providers fell to lows Wednesday that haven’t been witnessed since the recession in 2008. Many gaming companies ended the day with prices in single digits, including a handful that saw their value land below $1 per share.

On the day after the U.S. casino industry all but shut down in response to the COVID-19 coronavirus pandemic – led by the unprecedented governor-ordered 30-day closure of Nevada’s casino businesses – the Dow shed another 1,300 points, or 6.3%, to fall below the 20,000 point threshold for the first time since Feb. 2, 2017.

Red Rock Resort in Las Vegas displays the #vegasstrong message after it was closed Tuesday night/Photo by Howard Stutz

The largest declines were in the tour and travel sector, which included a 25% drop by MGM Resorts International and a 20.89% decline by Wynn Resorts. MGM Resorts ended the day at $7.14 while Wynn bottomed out at $43.02.

Ironically, MGM and Wynn were the first companies to voluntarily announce closures of their Las Vegas Strip properties on Sunday, two days ahead of Gov. Steve Sisolak’s announcement.

The casino companies weren’t alone in the declines. Every stock in the gaming sector finished in the red.

Las Vegas Sands Corp. was down 7.78% to $37.68, regional giant Penn National Gaming fell 38.34% to close at $4.52, and Boyd Gaming fell 29.56% to close at $7.84. Las Vegas locals gaming giant Red Rock Resorts closed down 34.72% to $3.76.

Eldorado-Caesars deal

Meanwhile, questions arose over the health of the planned $17.3 billion merger between Eldorado Resorts and Caesars Entertainment. The deal is expected to close in the first half of the year. Eldorado fell 29.63% to close at $7.10, while Caesars was down 30.98% to close at $3.52.

Also Wednesday, Eldorado said it was suspending operations at the company’s Isle Casino Racing in Pompano, Florida due to the coronavirus outbreak.

Neither company has commented on the status of the transaction, which has been approved by regulators in seven states but still needs the signoff from 12 other states and the Federal Trade Commission. Several potential casino purchases may be contingent on the transaction closing.

In a research note to investors Tuesday night, SunTrust Bank gaming analyst Barry Jonas said Eldorado management is committed to closing the transaction under its continued belief in the long-term strategic rationale.

“Coronavirus shutdowns do not meet the material adverse change clause of the merger agreement, and Eldorado would likely need to pay a sizable termination fee should they not proceed,” Jonas told investors.

He said the financing for the transaction – $7.2 billion – is “fully committed under a contractual obligation” to close the deal.

“Lenders could refuse to fund the deal if the borrower is insolvent, which our analysis suggests won’t be the case,” Jonas added.

Liquidity matters

This week, several companies began drawing down unused credit lines to help cover costs, according to filings with the Securities and Exchange Commission.

Caesars Entertainment said it has fully drawn the remaining available capacity under three credit facilities, totaling more than $1.15 billion. Bloomberg News reported that MGM Resorts is planning to draw down as much as $1.5 billion of its backup loans.

Meanwhile, Churchill Downs told creditors it was drawing down $700 million, Boyd borrowed the remaining $600 million of its revolving credit facility, Penn National borrowed the remaining $430 million of its credit line, Eldorado Resorts drew down its remaining $465 million, and Golden Entertainment fully drew on its $200 million credit facility.

Gaming equipment provider Everi Holdings drew down on its $35 million credit facility.

Manufacturers fall

The manufacturing sector wasn’t immune to the stock disaster. Wall Street soured on gaming equipment companies as slot machines were silenced around the nation.

International Game Technology fell 23.43% to $3.79, Scientific Games was off 30.68% to $4.09, AGS fell 41.34% to $1.05, and Everi was off 36.29% to $1.65.

Everi saw a small jump in its stock price earlier in the week when directors and executive acquired shares in the company, according to Securities and Exchange Commission filings.

Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.