Fitch Ratings, expecting a 2023 downturn in gambling revenues, said yesterday that casino companies were “favorably [positioned] to weather the demand pullback anticipated after 2022’s exceptionally strong performance.” Going in their favor are stronger credit profiles, thanks to post-COVID-19 economy measures, as well as “solid leisure demand.”
Slot manufacturers “are relatively well positioned,” thanks to the current purchasing power of the casino operators and their own efficiencies, which include employing free cash flow to pay down debt and selling assets, usually of the non-core variety. Debt-to-cash flow ratios in the manufacturing sector are at three times EBITDA, down dramatically from the five-times ratio that prevailed before the pandemic.
While Fitch anticipates a decline in money made from revenue-participation games, “casino operators of new slot budgets remain healthy due to performance still above 2019 levels, solid operator [free cash flow] generation, and relative underinvestment during the pandemic.”
Thusly, Fitch put a Stable rating “predominantly” among the U.S. gaming industry, with a few exceptions. Bally’s Corp. was identified as one that is under pressure, with “large developments and upcoming competitive openings” in key markets. $1.7 billion Bally’s Chicago helped drive a Negative rating on Bally’s credit. Unlike Bally’s, which projects a 15 percent return on invested capital (ROIC) from the Windy City megaresort, Fitch anticipates 12 percent ROIC and cash flow of $200 million a year, given a steep tax rate and the win per slot per day of comparable casinos in the Chicago area.
“Negative” was also the outlook for Las Vegas Sands, due to ongoing concerns about when gaming revenues and visitation will return to Macau, and in what strength. Unlike other Wall Street voices, Fitch was circumspect, concluding, “The recent and rapid elimination of travel and health restrictions in the Greater Bay Area will support Macau’s recovery, though likely not until mid-2023 given widely circulating viral outbreak.”