Fitch Ratings has affirmed a negative position on Empire Resorts, which consists entirely of Resorts World Catskills, the Genting Berhad $1 billion casino in rural New York state. The rating “considers the risks and uncertainty the U.S. gaming industry is facing from the pandemic and the early stages of New York State casinos’ recovery relative to other regional gaming markets,” wrote Fitch analysts.
One factor causing trepidation is the heavy leverage on the property. Another is Empire Resorts’ lack of diversification, exposing it entirely to the vicissitudes of the Catskills region. Fitch called the latter “a competitive market that could be subject to new supply in the medium term.” Some alleviation is possible when Empire opens a satellite slot parlor in Newburgh next year, but “given the geographic proximity of Newburgh, the ratings benefit from opening the additional casino will be somewhat limited.”
The investor service also noted competitive pressures exerted by casinos in Atlantic City, eastern Pennsylvania, Foxwoods and Mohegan Sun in Connecticut, as well as (slots-only) Empire City Yonkers and Resorts World New York in the Five Boroughs. “The competitive landscape makes significant, long-term growth in gaming revenues unlikely. Additionally, New York State can consider incremental downstate full-scale licenses beginning in 2023, which could in turn increase political momentum to try and expand gaming in New Jersey again.”
On the brighter side, liquidity at Resorts World Catskills was deemed “not a material near-term concern,” due in part to the continued ramp-up in the property and sufficient cash on hand to meet operating costs and debt service. Allowing for growing cash flow and low levels of maintenance expenses (due to the newness of the casino), Resorts World Catskills is projected to throw off “a small level” of free cash flow.
Empire Resorts’ rating would have been lower if not for its ties to Genting Malaysia, although Fitch deemed Resorts World Catskills “as having less strategic value than other wholly owned Genting properties, which are generally large-scale flagship assets that generate materially greater cash flow.”
Fitch projects $315 million in revenue for Resorts World Catskills in fiscal year 2022, ramping up to $400 million in FY2023, although 25 percent cannibalization is anticipated from the Newburgh slot parlor. Cash flow in 2021 is believed to be only $36 million, due to COVID-19 restrictions in 2020-2021. A move to take Empire Resorts private is expected to improve cash-flow margins, as will “a rationalization of the labor pool post-coronavirus,” often an industry euphemism for job cuts.