Gaming stocks post solid gains in March

Apr 1, 2010 9:01 AM

Gaming industry stocks made substantial gains in March, according to the Applied Analysis Gaming Index (AAGI) released early today.

The AAGI climbed to a valuation not witnessed since the financial market meltdown in the fall of 2008. The AAGI moved up 20.0 points to a value of 305.9 by the close of the first calendar quarter of 2010.

The 7.0-percent increase from February 2010 was partly due to improvements in the broader equities markets, while industry activity and speculation also increased demand for gaming stocks.

Compared to the same month of the prior year, the AAGI was up 61.4 percent. The S&P 500 increased by 5.8 percent during the month (when computed on a similar basis), while comparisons to the prior year reflect a 52.2 percent jump.

The AAGI is a monthly gauge on equity valuations of ten major gaming related companies, comprised of seven operators and three manufacturers of machines and equipment.

Increases in values in the gaming sector were primarily driven by an 8.7-percent rise for operators that contributed 24.9 points to the composite score, while gaming equipment manufacturers included in the index moved in the opposite direction.

Much of the activity surrounding operators in March were linked to moves outside of the Las Vegas market and refinancing activity to extend debt maturities. MGM MIRAGE (MGM) appears to be exploring the possibility of a Hong Kong initial public offering (IPO) of its Macau-based operations. The move follows two similar transactions by gaming companies with assets on the Las Vegas Strip and in the Chinese market – Wynn Macau and Sands China.

According to media reports, the transaction could net as much as $500 million and could take place in the second half of this year.

In addition to potentially selling an interest in its assets abroad, MGM entered into a settlement agreement with the New Jersey Casino Control Commission which will have the gaming company liquidating its 50-percent interest in the Borgata Hotel Casino & Spa and related leased land. Regulators in New Jersey have indicated they are not comfortable licensing MGM while Pansy Ho, daughter of an alleged crime figure, remains an investor in the company’s Macau property.

The 50-percent share will be placed in a trust until a disposition to a third party can occur, which is planned within 18 months. Boyd Gaming (BYD) owns the other half of the venture and manages the property.

During the month, MGM also amended its credit agreements which provides for an extended maturity date into 2014, rather than the previously agreed October 2011 timeframe. Approximately $1.2 billion will remain with the earlier maturity under this arrangement. Earlier in the month, MGM issued $845 million in debt in a private placement; the majority of the proceeds were used to repay debts under its credit facility. The latest actions combined with pending asset sales may have MGM increasing its liquidity position and/or de-leveraging its balance sheet. Wynn Resorts, Ltd. (WYNN) also announced an exchange offer that would transfer notes maturing in 2014 with those with a maturity date in 2020.