Macquarie analyst highlights leverage as key differentiator for casino operators

Leverage becomes key metric

Macquarie analyst Chad Beynon says leverage is reemerging as an “important differentiator” in the gaming, lodging and leisure space, according to recent research.

Monarch Casino & Resort (NASDAQ: MCRI) shares gained 19% year-to-date, while operators with higher debt levels have faced challenges. Bally’s (NYSE: BALY), Century Casinos (NASDAQ: CNTY) and Full House Resorts (NASDAQ: FLL) are among the most levered casino operators and have seen their shares decline this year.

Interest coverage under pressure

Interest coverage ratios remain challenged for several smaller-cap operators, with Full House Resorts at 0.8x, Bally’s at 1.0x, and Century Casinos at 1.2x, according to Beynon. Century Casinos recently sold a pair of Canadian racinos in an effort to reduce debt.

Major operators face maturity walls

Several major casino operators, including Bally’s, Caesars Entertainment (NASDAQ: CZR), Las Vegas Sands (NYSE: LVS), MGM Resorts International (NYSE: MGM) and Wynn Resorts (NASDAQ: WYNN), face meaningful maturity walls over the next three years, according to the analyst. Combined, that quintet has $20.5 billion in debt maturing over the next three years.

Capital spending cycles add pressure

Bally’s is in the midst of substantial capital spending cycles in Chicago and New York, while Full House is undertaking similar projects in Illinois and Wynn in the UAE, according to Beynon.