Fitch: Las Vegas is Undergoing a Lengthy Rehabilitation Path
Fitch Ratings released a report on the gaming sector on Wednesday saying that regional casinos are moving backwards and slowly going to pre-closure stages. However, the rating agency noted that the path to recovery will be long for Las Vegas, predicting 2024 as the year the casino Mecca will hit its level of turnover in 2019.
Dependence On Convention, Travel And Air Traffic
Fitch predicts Las Vegas, owing to its dependence on inbound tourism, will be the global gaming and hospitality destination with the slowest recovery. Despite the fact that gaming declines were not that serious, about two-thirds of the revenue from las vegas strip is created from non-gaming activities and needs the rebound of convention and tourism.
The rating agency sees the recent relaxation of party constraints as a promising step in the path of growth, but does not see the growing up conference market or rising airline traffic until there is a lasting solution to the health crisis. Air capacity is currently limited to around 60% of pre-pandemic peaks but airlines remain the most feasible means of travel to Las Vegas.
Companies Strips Unlikely To Rebound By 2022
Strip's total gaming sales are estimated by the rating agency's analysts to plummet 60% in 2020, 50% in 2021, and 20% in 2022, relative to 2019 levels. Unlike the strip casinos, regional gaming operations have rebounded since they started reopening in may, fitch observed. Regional gaming sales for august were down 16% year-on-year, except New York, and the agency expects the fall will be about 10% over 2021, relative to 2019 levels.
Since the reopenings, the margin for operators increased as they spend less on advertising and other costs for services, but Fitch expects margin levels to shift towards normalization along with overall recovery success within the market. Worryingly for land-based gaming facilities, online gaming revenue in New Jersey and Pennsylvania continues to hold high rate even after the casinos reopening, indicating a gradual move from land-based gambling to igaming.
Liquidity Is Not A Concern
Fitch reports that the players of the gaming industry sit on enough cash to effectively maneuver their ways out of the current situation, pointing to their actions in debt issuance during the first half of the year. Gaming firms opted to move from protective revolving credit facilities by finalizing them via unsecured bonds, moving maturities to 2022 and beyond.
Fitch Ratings observed that the capacity to deleverage would be greater for regional operators and vendors, as multinational operators would focus more on their destination markets and face a longer road to positive free cash due to sustained vulnerabilities in those regions.
The leverage criteria applied by the rating agency in support of 2022/2023 shows that most issuers of unsecured debt notes have some downside credit buffer.
